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STOCK PURCHASE AGREEMENT
BY AND AMONG
NET2PHONE, INC.
AND
THE APLIO SHAREHOLDERS NAMED HEREIN
JUNE 16, 2000
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TABLE OF CONTENTS
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SECTION 1. DEFINITIONS...................................................... 1
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SECTION 2. PURCHASE AND SALE OF STOCK....................................... 5
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2.1 Stock Purchase................................................ 5
2.2 Purchase Price for Acquired Stock............................. 6
2.3 Closing Transaction........................................... 6
2.4 Delivery of Purchase Price after the Closing.................. 7
2.5 Closing Balance Sheet......................................... 10
2.6 Post-Closing Adjustment of Purchase Price..................... 11
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY............. 11
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3.1 Organization, Qualification, and Corporate Power.............. 11
3.2 Noncontravention.............................................. 12
3.3 Capitalization of the Company................................. 12
3.4 Subsidiaries.................................................. 12
3.5 Financial Statements.......................................... 13
3.6 Litigation.................................................... 13
3.7 Absence of Undisclosed Liabilities............................ 14
3.8 Taxes......................................................... 14
3.9 Intellectual Property......................................... 15
3.10 Environmental, Health, and Safety Matters..................... 16
3.11 Employment Matters............................................ 17
3.12 Accounts Receivable........................................... 18
3.13 Tangible Property............................................. 18
3.14 Broker's Fees................................................. 18
3.15 Contracts and Obligations..................................... 18
3.16 Absence of Improper Payments.................................. 19
3.17 Insurance..................................................... 19
3.18 Employees..................................................... 19
3.19 Year 2000 Compliance.......................................... 19
3.20 Affiliated Transactions....................................... 20
3.21 Compliance with Laws.......................................... 20
3.22 No Material Adverse Change.................................... 20
3.23 Absence of Certain Developments............................... 20
3.24 Business Plan and Forecasts................................... 22
SECTION 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE APLIO SHAREHOLDERS. 22
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4.1 Organization and Power........................................ 22
4.2 Authorization of Stock Purchase............................... 22
4.3 Noncontravention.............................................. 22
4.4 The Acquired Stock............................................ 22
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4.5 Securities Law Issues......................................... 23
4.6 Broker's Fee.................................................. 23
SECTION 5. REPRESENTATIONS AND WARRANTIES CONCERNING ALLIA AND THE ALLIA
---------- SHAREHOLDERS.................................................... 23
5.1 Organization and Power With Respect to the Allia Shareholder.. 24
5.2 Organization, Qualification, Power, and Liabilities
Concerning Allia.............................................. 24
5.3 Capitalization of Allia....................................... 24
5.4 Authorization of Stock Purchase............................... 24
5.5 Noncontravention.............................................. 25
5.6 The Acquired Stock............................................ 25
5.7 Securities Law Issues......................................... 25
5.8 Broker's Fee.................................................. 26
SECTION 6. REPRESENTATIONS AND WARRANTIES OF NET2PHONE..................... 26
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6.1 Organization, Qualification, and Corporate Power.............. 26
6.2 Authorization of Stock Purchase............................... 26
6.3 SEC Filings................................................... 26
SECTION 7. COVENANTS....................................................... 26
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7.1 General....................................................... 26
7.2 The Company's Interim Operation of Business................... 27
7.3 Access........................................................ 29
7.4 Notice of Developments........................................ 30
7.5 Acquisition Proposals......................................... 30
7.6 Press Releases and Public Announcements....................... 30
7.7 Covenants of each Aplio Shareholder........................... 30
7.8 Treatment as Payment of Purchase Price........................ 31
7.9 Stock Options................................................. 31
7.10 Further Assurances............................................ 33
SECTION 8. CONDITIONS TO CLOSING........................................... 33
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8.1 Joint Conditions to Obligations of Net2Phone and the Aplio
Shareholders.................................................. 33
8.2 Conditions to Obligations of Net2Phone........................ 33
8.3 Conditions to Obligations of the Aplio Shareholders........... 35
SECTION 9. INDEMNIFICATION................................................. 35
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9.1 Agreements to Indemnify....................................... 35
9.2 Limitations on Indemnification................................ 36
9.3 Method of Asserting and Resolving Claims...................... 37
SECTION 10. TERMINATION AND ITS CONSEQUENCES................................ 38
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10.1 Termination of Agreement...................................... 38
10.2 Effect of Termination......................................... 39
SECTION 11. PUT AND CALL RIGHTS............................................. 39
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11.1 Put Notice.................................................... 39
11.2 Put Closing................................................... 39
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11.3 Call Notice................................................... 40
11.4 Call Closing.................................................. 40
11.5 Transfers in a Public Sale.................................... 40
11.6 Definitions................................................... 40
SECTION 12. MISCELLANEOUS................................................... 43
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12.1 Aplio Shareholder Representatives............................. 43
12.2 Representations and Survival.................................. 44
12.3 Liquidated Damages............................................ 44
12.4 No Third Party Beneficiaries.................................. 44
12.5 Entire Agreement.............................................. 44
12.6 Succession and Assignment..................................... 45
12.7 Counterparts and Delivery..................................... 45
12.8 Notices....................................................... 45
12.9 Governing Law................................................. 46
12.10 Amendments and Waivers........................................ 46
12.11 Construction.................................................. 46
12.12 Schedules..................................................... 46
12.13 Time is of Essence; Computation of Time....................... 47
12.14 Specific Performance.......................................... 47
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SCHEDULES
The Company Schedules
2.1 Ownership of Aplio Shareholders
2.2 Purchase Price Allocation
3.1 Organization, Qualification and Corporate Power
3.2 Noncontravention
3.3 Capitalization of the Company
3.4 Subsidiaries
3.5 Financial Statements
3.6 Litigation
3.8 Absence of Undisclosed Liabilities
3.8(a) Tax Returns of the Company Subject to IRS Audit
3.8(b) Tax Indemnification, Tax Allocation and Tax Sharing Agreements
3.9(c) Patents, Copyrights and Licenses
3.9(d) Intellectual Property Agreements
3.10(a) Non-Compliance with Environmental, Health and Safety Matters
3.10(b) Environmental Investigations, Studies, Reviews, Audits, Tests and
Other Analyses
3.11 Employee Benefit Plans
3.13 Tangible Property
3.15 Contracts
3.17 Insurance
3.18 Employees
3.20 Affiliated Transactions
3.23 Absence of Certain Developments
3.24 Business Plan and Forecasts
5.3 Capitalization of Allia
7.9 Stock Options
EXHIBITS
EXHIBIT A Statement of Accounting Principles
EXHIBIT B Form of Promissory Note
EXHIBIT C Form of Non-Competition and Non-Disclosure Agreement
EXHIBIT D Form of Escrow Agreement
EXHIBIT E Form of Opinion of Company's Counsel
EXHIBIT F Form of Registration Rights Agreement
EXHIBIT G Form of Letter Agreement
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of June 16, 2000, by and among Net2Phone, Inc., a Delaware corporation
("Net2Phone"), the Aplio Management Shareholders listed on the signature pages
hereto (the "Aplio Management Shareholders"), the Aplio Financial Shareholders
listed on the signature pages hereto (the "Aplio Financial Shareholders"), and
the Allia Shareholders listed on the signature pages hereto (the "Allia
Shareholders," and together with the Aplio Management Shareholders and the Aplio
Financial Shareholders, the "Aplio Shareholders"). Net2Phone and the Aplio
Shareholders are collectively referred to herein as the "Parties."
WHEREAS, the Aplio Shareholders directly or indirectly own all of the
issued and outstanding shares of capital stock of Aplio, S.A., a societe anonyme
organized under the laws of France (the "Company"); and
WHEREAS, the Parties desire to enter into this Agreement to provide
for the purchase by Net2Phone of (i) all of the issued and outstanding shares of
capital stock of the Company owned by the Aplio Shareholders other than Allia
B.V., a company organized under the laws of the Netherlands ("Allia"), and (ii)
all of the issued and outstanding shares of capital stock of Allia from the
Allia Shareholders.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
SECTION 1.
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DEFINITIONS
In this Agreement:
"Acquisition Proposal" means, with respect to any Person, any proposal
regarding (i) any merger, consolidation, share exchange, business combination or
other similar transaction or series of related transactions involving that
Person or any Subsidiary of that Person; (ii) any sale, lease, exchange,
transfer or other disposition of the assets of that Person or any of its
Subsidiaries; and (iii) any offer to purchase, tender offer, exchange offer or
any similar transaction or series of related transactions made by any other
Person involving the outstanding shares of any class of capital stock of that
Person.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means the possession, directly
or indirectly, of power to direct or cause the direction of the management and
policies of a Person whether through the ownership of voting securities, by
contract or otherwise.
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday or
Friday that banks located in New York, New York or Paris, France are not
required or permitted by law to be closed.
"Cause" with respect to any Aplio Management Shareholder, exists when
such Aplio Management Shareholder has: (i) been convicted (or admitted his guilt
or entered a plea of no contest) of any crime which under the laws of the State
of New York would constitute a felony, (ii) has engaged in any act which
constitutes Competition (as such term is defined in the Non-Disclosure and Non-
Competition Agreement of such Aplio Management Shareholder); or (iii) willfully
and knowingly committed any act (or omitted to take any act) which constitutes a
material breach of such person's fiduciary duty to Net2Phone or any of its
Subsidiaries; provided that if such breach or failure is susceptible to cure,
the breach or failure has not been cured or remedied and continues after fifteen
(15) business days from the date on which written notice of such breach or
failure was provided to such person by Net2Phone.
"Code" means the Internal Revenue Code of 1986, as amended.
"Computer Systems" means computer software, computer firmware,
computer hardware (whether general or special purpose), and other similar or
related items of automated, computerized and/or software system(s), including
but not limited to microprocessors that control telecommunication systems,
elevators, diagnostic equipment, HVAC systems, automated assembly lines or other
operating systems of the Company or any of its Subsidiaries.
"Contract" means any loan or credit agreement, note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization, license,
contract, instrument, benefit plan or practice or other agreement, arrangement,
obligation, instrument or commitment of any nature, whether written or oral.
"Environmental, Health, and Safety Requirements" means all applicable
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, each as amended and as in effect
now or at any time prior to the Closing, all judicial and administrative orders
and determinations, and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous substances, materials or wastes or
noise.
"Escrow Account" has the meaning set forth in the Escrow Agreement.
"Escrow Agent" has the meaning set forth in the Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"French GAAP" means, at any time, the generally accepted accounting
principles used by professional auditors in France (experts comptables) or such
other principles or practices as may be required by the applicable laws or
regulations of France.
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"Governmental Entity" means any administrative agency, commission,
court or other governmental authority or instrumentality, domestic or foreign,
including any government-sponsored corporation having regulatory authority under
law.
"Hazardous Material" means any pollutant, contaminant, hazardous
material, hazardous waste, toxic substance for which an obligation, liability or
standard of conduct could be imposed under any Environmental Law.
"Indebtedness" means at a particular time, without duplication, (i)
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which the Company is
liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of
business which are not more than six months past due), (iv) any agreement by
which the Company assures a creditor against loss (including, without
limitation, contingent reimbursement obligations with respect to letters of
credit), (v) any indebtedness guaranteed in any manner by the Company
(including, without limitation, guarantees in the form of an agreement to
repurchase or reimburse), (vi) any obligations under capitalized leases with
respect to which the Company is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or with respect to which obligations the Company assures
a creditor against loss, (vii) any indebtedness secured by a Lien on the
Company's assets and (viii) any unsatisfied obligation to pay any retirement,
medical or other welfare benefit to or on behalf of any current or former
employee of the Company, the payment or performance of which is the Company's
obligation.
"Intellectual Property" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, whether registered or
unregistered, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) Internet
domain names, and registrations and applications for registration thereof, (d)
all copyrightable works, all copyrights, whether registered or unregistered, and
all applications, registrations, and renewals in connection therewith, (e) all
mask works and all applications, registrations, and renewals in connection
therewith, (f) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (g) all computer
software (including source code and object code, data and related
documentation), (h) all other proprietary rights, and (i) all copies and
tangible embodiments thereof (in whatever form or medium).
"IRS" means the Internal Revenue Service (or any successor
governmental agency).
"Knowledge" has the meaning set forth in Section 12.11.
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"Market Value" of each share of Net2Phone Common Stock means, as of
any date, the average of the closing prices of sales of Net2Phone Common Stock
on all U.S. securities exchanges on which Net2Phone Common Stock may be listed
during the twenty (20) trading days immediately prior to such date, or, if there
have been no sales on any such exchange on any day during such period, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day shares of Net2Phone Common Stock are not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time during the twenty (20) trading days
immediately prior to such date, or, if on any day shares of Net2Phone Common
Stock are not quoted in the NASDAQ System, the average of the daily highest bid
and lowest asked prices in the U.S. over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor organization,
in each such case averaged over the twenty (20) trading days immediately prior
to such date.
"Material Adverse Effect" means, with respect to any Person, any
change in or effect on the business of that Person or any of its Subsidiaries
that, in the aggregate, is or reasonably could be expected to be materially
adverse to the business, operations (including the income statement), properties
(including intangible properties), condition (financial or otherwise), assets,
liabilities, regulatory status, value or prospects of that Person and its
Subsidiaries taken as a whole.
"NASDAQ System" means the Nasdaq Stock Market System.
"Net2Phone Common Stock" means the common stock, no par value per
share, of Net2Phone.
"Ordinary Course" means with respect to any Person, in the ordinary
course of that Person's business consistent with past custom and practice,
including as to the quantity, quality and frequency.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a Governmental Entity (or any
department, agency, or political subdivision thereof).
"SEC" means the Securities and Exchange Commission and includes any
governmental body or agency succeeding to the functions thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, equity or other encumbrance, other than (a)
mechanics and similar statutory liens arising or incurred in the ordinary course
of business, (b) zoning, entitlement, building and other land use regulations
imposed by governments or agencies which are not violated by any current or
presently proposed use or operation, (c) covenants, conditions, restrictions,
easements and other similar matters of record affecting title to any real
property which do not materially impair the current occupancy, use or value of
that property and which have been disclosed in the schedules to this Agreement,
(d) statutory liens for taxes or other
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governmental charges not yet due and payable or for taxes that the taxpayer is
contesting in good faith through appropriate proceedings, and (e) purchase money
liens and liens securing rental payments under capital lease arrangements.
"Subsidiary" means any corporation, partnership, limited liability
company or other organization, whether or not incorporated, with respect to
which a specified Person owns (directly or indirectly through one or more
Subsidiaries thereof) at least twenty-five percent (25%) of the voting
securities or equity interests or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Tangible Net Worth" as of any date, means the excess, if any, of the
Company's consolidated tangible assets over its consolidated liabilities as
determined in accordance with French GAAP consistently applied and in accordance
with the Statement of Accounting Principles attached as Exhibit A hereto.
"Target Tangible Net Worth" means 18,750,000 FFR.
"Tax" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, real property gains, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profits,
environmental (including without limitation under Section 59A of the Code),
customs, duties, real property, personal property, capital stock, intangibles,
social security (or similar), unemployment, disability, payroll, license,
employee or other withholding, or other tax, of any kind whatsoever, including
any interest, penalties or additions to tax or similar items in respect of the
foregoing (whether disputed or not).
"Tax Affiliate" means a Subsidiary of the Company, any Person of which
the Company is a Subsidiary, and any affiliated, combined, or unitary group of
which the Company or any Subsidiary is or was a member.
"Tax Return" means any return, report, declaration, claim for refund,
information return or other document (including any related or supporting
schedule, statement or information) filed or required to be filed in connection
with the determination, assessment or collection of any Tax of any party or the
administration of any laws, regulations or administrative requirements relating
to any Tax (including any amendment or other modification thereof).
SECTION 2.
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PURCHASE AND SALE OF STOCK
2.1 Stock Purchase. On and subject to the terms and conditions set forth in
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this Agreement, on the Closing Date (as hereinafter defined) Net2Phone shall (i)
purchase from the Aplio Shareholders (other than Allia), and each Aplio
Shareholder (other than Allia) shall sell and transfer to Net2Phone, all of the
shares of the capital stock of the Company (the "Aplio Stock") owned by such
Aplio Shareholder as such ownership is set forth on Schedule 2.1, and (ii)
purchase from the Allia Shareholders, and each Allia Shareholder shall sell and
transfer to Net2Phone, all of the shares of capital stock of Allia (the "Allia
Stock," and together with the
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Aplio Stock, the "Acquired Stock") owned by such Allia Shareholder as such
ownership is set forth on Schedule 2.1. All such shares of Aplio Stock and Allia
Stock shall be transferred to Net2Phone free and clear of any restrictions on
transfer or any claims, taxes, liens, pledges, options, warrants, rights,
contracts, calls, commitments, equities, proxies or demands ("Encumbrances").
2.2 Purchase Price for Acquired Stock. The aggregate purchase price to be paid
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by Net2Phone to the Aplio Shareholders for the Acquired Stock (the "Purchase
Price") shall be (x) $45.0 million, minus (y) the aggregate amount of
Indebtedness of the Company as of the Closing (other than 1,436,000 FFR advanced
under the Company's Anvar Facility on June 16, 2000), and minus (z) the
Adjustment Amount as finally determined under Section 2.6 plus. The Purchase
Price shall be allocated among the Aplio Shareholders as set forth on Schedule
2.2.
2.3 Closing Transaction.
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(a) Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Serra Michaud &
Associes, 2 Rue de la Baume, 75008, Paris, France, commencing at 10:00 a.m.
local time on June 27, 2000, or at such other place or on such other date as may
be mutually agreeable to Net2Phone and the Aplio Shareholder Representatives (as
hereinafter defined). The date and time of the Closing are herein referred to as
the "Closing Date."
(b) Closing Transactions. Subject to the conditions set forth in this
Agreement, the Parties shall consummate the following "Closing Transactions" on
the Closing Date:
(i) Each Aplio Shareholder (other than Allia) shall deliver to
Net2Phone share transfer orders (ordres de mouvement) representing all of
the shares of Aplio Stock owned by such Aplio Shareholder in a form
sufficient to transfer shares of Aplio Stock to Net2Phone free and clear of
all Encumbrances;
(ii) The Allia Shareholders and Net2Phone shall execute, before a
Notary in The Netherlands, a share sale, purchase and transfer deed
sufficient for the transfer of all of the Allia Stock to Net2Phone, free
and clear of all Encumbrances.
(iii) Net2Phone shall deliver to each Aplio Shareholder his/its share
of the Purchase Price to be paid at the Closing (the "Closing Date Portion
of the Purchase Price") by (A) delivery of shares of Net2Phone Common Stock
registered in the recipient's or its designee's name, (B) delivery of a
Promissory Note in the form of Exhibit B hereto and/or (C) wire transfer of
immediately available funds to an account designated by the recipient, in
each case to the Persons and in the amounts as set forth on Schedule 2.2;
(iv) Net2Phone shall pay all Indebtedness of the Company to the
Persons and in the amounts as set forth on Schedule 2.2.
(v) Net2Phone shall deliver to the Escrow Agent for deposit into
the Escrow Account a number of shares of Net2Phone Common Stock registered
in the names of the Aplio Management Shareholders who are beneficiaries
thereof and in the amounts as set
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forth on Schedule 2.2 (one half of the shares of Net2Phone Common Stock
deposited into the Escrow Account shall be held as security for the First
Anniversary Management Payment and one half of the shares of Net2Phone
Common Stock deposited into the Escrow Account shall be held as security
for the Second Anniversary Management Payment);
(vi) Each Aplio Shareholder shall deliver to Net2Phone duly executed
short-form share transfer agreements or declarations for the purpose of
registration with the French tax authorities and payment of the
corresponding transfer tax;
(vii) The Aplio Shareholders and Net2Phone, as applicable, shall
deliver the opinions, certificates and other documents and instruments
required to be delivered by or on behalf of such Party under Section 8;
(viii) Messrs. Tebeka, Constantini and Uzan shall deliver to Net2Phone
non-competition and non-disclosure agreements in the form of Exhibit C
hereto (the "Non-Competition and Non-Disclosure Agreements");
(ix) Each Aplio Shareholder shall deliver to Net2Phone all corporate
books and records of the Company or Allia in such Aplio Shareholder's
possession.
2.4 Delivery of Purchase Price after the Closing. The portion of the Purchase
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Price to be paid to the Aplio Shareholders after the Closing shall be paid as
follows:
(a) up to $500,000 (the "Adjustment Holdback Amount") shall be paid by
Net2Phone to the Aplio Shareholders as allocated on Schedule 2.2 to the extent
owing under Section 2.6 promptly upon final determination of the Adjustment
Amount to be paid thereunder;
(b) up to $2,778,230 together with interest thereon accruing at the rate
of 6.53% per annum (the "First Anniversary Management Payment") will be paid as
provided in Section 2.4(g) to certain Aplio Management Shareholders as allocated
on Schedule 2.2 on the first anniversary of the Closing Date; provided that
(subject to clause (e) below) such payment will be made to any particular Aplio
Management Shareholder entitled to receive such payment if and only if such
Aplio Management Shareholder has been continuously employed by Net2Phone or its
Subsidiaries from the date of the Closing through and including the first
anniversary of the Closing;
(c) Up to $2,778,230 together with interest thereon accruing at the rate
of 6.53% per annum (the "Second Anniversary Management Payment") will be paid as
provided in Section 2.4(g) to certain Aplio Management Shareholders as allocated
on Schedule 2.2 on the second anniversary of the Closing Date; provided that
(subject to clause (e) below) such payment will be made to any particular Aplio
Management Shareholder entitled to receive such payment if and only if such
Aplio Management Shareholder has been continuously employed by Net2Phone or its
Subsidiaries from the date of the Closing through and including the second
anniversary of the Closing;
(d) up to $4.3 million together with interest thereon accruing at the rate
of 6.53% per annum (the "Indemnity Holdback Amount"), as such amount is reduced
by indemnification
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payments to be made by the Aplio Shareholders pursuant to Section 9, shall be
paid by Net2Phone to the Aplio Shareholders as allocated on Schedule 2.2 on the
date which is eighteen months after the date of the Closing;
(e) any payment to be made by Net2Phone under Sections 2.4(a) and 2.4(d)
shall be made at the option of Net2Phone either by (i) wire transfer of
immediately available funds to an account designated by the recipient or (ii) by
delivery of a number of shares of Net2Phone Common Stock having an aggregate
Market Value at the time of payment equal to the payment to be made by
Net2Phone;
(f) notwithstanding the provisions of Sections 2.4(b) and (c),
(i) if Net2Phone or its subsidiaries at any time terminates without
Cause the employment of any Aplio Management Shareholder prior to the
second anniversary of Closing, Net2Phone shall as of the date of such
termination pay to such person the full amount of any unpaid First
Anniversary Management Payment and Second Anniversary Management Payment to
which such Aplio Management Shareholder would otherwise be entitled;
(ii) if the employment of any of Messrs. Tebeka, Constantini or Uzan
with Net2Phone or its Subsidiaries is terminated due to such person's
complete and permanent physical disability at any time prior to the second
anniversary of Closing, Net2Phone shall pay the full amount of any unpaid
First Anniversary Management Payment or Second Anniversary Management
Payment payable to such person at the times and in the manner provided in
Sections 2.4(b), 2.4(c) and 2.4(g);
(iii) if, at any time prior to the second anniversary of Closing,
Net2Phone fails to make any payment of salary (payable on not less than a
monthly basis at the rate of $150,000 per year) to any of Messrs. Tebeka,
Constantini or Uzan within 30 days after delivery of written notice by such
person to Net2Phone of Net2Phone's failure to pay salary when due, the full
amount of any unpaid First Anniversary Management Payment or Second
Anniversary Management Payment shall immediately be due and payable to such
person by Net2Phone in the manner provided in Section 2.4(g); and
(iv) upon the death of any of Messrs. Tebeka, Constantini or Uzan at
any time prior to the second anniversary of Closing, Net2Phone shall have
no obligation to pay any unpaid First Anniversary Management Payment or
Second Anniversary Management Payment to such person (and all shares of
Net2Phone Common Stock deposited in the Escrow Account with respect to such
payment shall be released from the Escrow Account to Net2Phone); provided
that Net2Phone shall purchase, pay for and maintain for the benefit of each
such person at all times prior to the second anniversary of Closing a term
life policy for the benefit of any person(s) designated by any of Messrs.
Tebeka, Constantini or Uzan (as the case may be) in an aggregate amount
equal to the amount of any unpaid First Anniversary Management Payment or
Second Anniversary Management Payment; provided further that if Net2Phone
fails to maintain any such term life insurance policy for any reason (other
than the refusal of Messrs. Tebeka, Constantini or Uzan (as the case may
be) to submit to any required medical examinations or to provide any
reasonably requested information), Net2Phone shall pay any unpaid First
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<PAGE>
Anniversary Management Payment or Second Anniversary Management Payment at
the time and in the manner provided in Sections 2.4(b), 2.4(c) and 2.4(g).
(g) any payment to be made by Net2Phone under Sections 2.4(b) and 2.4(c)
shall be made as follows:
(i) if the value of shares of Net2Phone Common Stock held in the
Escrow Account with respect to the First Anniversary Management Payment or
the Second Anniversary Payment (as the case may be) is less than the amount
required to be paid in connection therewith as provided in Section 2.4(b)
or Section 2.4(c) (as the case may be), such payment shall be made at the
option of Net2Phone either by (x) wire transfer of immediately available
funds in an amount equal to the required payment amount by wire transfer of
immediately available funds to an account designated by the recipient (in
which case all shares in the Escrow Account with respect to such payment
shall be released to Net2Phone) or (y) delivery of all shares of Net2Phone
Common Stock held in the Escrow Account with respect to such payment and by
wire transfer of immediately available funds to an account designated by
the recipient in an amount equal to the difference between the amount of
the required payment minus the Market Value as of the date of payment of
shares of Net2Phone Common Stock to be delivered pursuant to this clause
(y); and
(ii) if the value of shares of Net2Phone Common Stock held in the
Escrow Account with respect to the First Anniversary Management Payment or
the Second Anniversary Payment (as the case may be) is greater than the
amount required to be paid in connection therewith as provided in Section
2.4(b) or Section 2.4(c) (as the case may be), such payment shall be made
at the option of Net2Phone either by (x) wire transfer of immediately
available funds in an amount equal to the required payment by wire transfer
of immediately available funds to an account designated by the recipient
(in which case all shares in the Escrow Account with respect to such
payment shall be released to Net2Phone) or (y) delivery of shares of
Net2Phone Common Stock held in the Escrow Account with respect to such
payment having an aggregate Market Value as of the date of payment equal to
the amount of the required payment (in which case all shares in the Escrow
Account with respect to such payment in excess of the number of shares
delivered pursuant to this clause (y) shall be released to Net2Phone); and
(h) in addition to the portion of the Purchase Price to be paid after the
Closing, as provided in clauses (a) through (g) above, on the third anniversary
of the Closing Net2Phone shall pay to each of Messrs. Tebeka, Constantini and
Uzan $833,333 (the "Third Anniversary Payment") by wire transfer of immediately
available funds to an account designated by the recipient, if and only if such
person has been employed by Net2Phone or its Subsidiaries at all times from the
date of Closing through and including the third anniversary of the Closing;
provided that if Net2Phone terminates the employment of any such person without
Cause, Net2Phone shall as of the date of such termination pay the Third
Anniversary Payment to such person.
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2.5 Closing Balance Sheet.
---------------------
(a) As promptly as practicable, but no later than 60 days after the
Closing Date, Net2Phone will cause to be prepared and delivered to the Aplio
Shareholders the consolidated balance sheet of the Company dated as of Closing
Date (the "Closing Balance Sheet"), together with a certificate (the "Company
Net Worth Certificate") of an executive officer of Net2Phone based on such
Closing Balance Sheet setting forth Net2Phone's good faith calculation of
Tangible Net Worth of the Company as of the Closing Date ("Closing Tangible Net
Worth"). The Closing Balance Sheet shall (i) fairly present the financial
position of the Company on a consolidated basis at the close of business on the
Closing Date, and (ii) be prepared in accordance with French GAAP as applied by
the Company in its December 31, 1999 audited financial statements and as
otherwise provided in the Statement of Accounting Principles attached hereto.
(b) If the Aplio Shareholders disagree with the calculation of Closing
Tangible Net Worth as set forth in the Company Net Worth Certificate, the Aplio
Shareholders may, within 20 days after receipt of the documents referred to in
clause (a) above, deliver to Net2Phone a certificate signed by the Aplio
Shareholder Representatives indicating their disagreement with Net2Phone's
calculation of Closing Tangible Net Worth and setting forth the Aplio
Shareholders' calculation of such amount (the "Shareholders Disagreement
Certificate"). Any such Shareholders Disagreement Certificate shall specify
those items, amounts or calculations as to which the Aplio Shareholders
disagree, and the Aplio Shareholders shall be deemed to have agreed with all
other items, amounts or calculations contained in the Closing Balance Sheet and
the calculation of Closing Tangible Net Worth as set forth in the Company Net
Worth Certificate.
(c) If a Shareholder's Disagreement Certificate shall be delivered
pursuant to clause (b) above, Net2Phone and the Aplio Shareholders shall, during
the 30 days following such delivery, use their best efforts to reach agreement
on the disputed items or amounts in order to determine the amount of Closing
Tangible Net Worth, which amount shall not be less than the amount thereof shown
in Net2Phone's calculations as set forth in the Company Tangible Net Worth
Certificate nor more than the amount thereof shown in the Aplio Shareholders'
calculation as set forth in the Shareholders Disagreement Certificate. If, after
such period, Net2Phone and the Aplio Shareholders are unable to reach agreement,
they shall promptly thereafter cause a big-five accounting firm jointly selected
by the Aplio Representatives and Net2Phone (the "Auditor") to review this
Agreement, the certificates delivered pursuant to this Section 2.5, and the
disputed items, amounts or calculations for the purpose of calculating Closing
Tangible Net Worth. In making such calculation, the Auditor shall consider only
those items, amounts or calculations as to which Net2Phone and the Aplio
Shareholders have disagreed. The Auditor shall deliver to Net2Phone and the
Aplio Shareholders, as promptly as practicable, its report setting forth such
calculation. Such report shall be final and binding upon Net2Phone and the Aplio
Shareholders. The cost of such review and report shall be borne by the Party
whose calculation of Closing Tangible Net Worth as set forth in the certificates
delivered pursuant to Sections 2.5(a) and (b) is furthest from the Auditor's
calculation of Closing Tangible Net Worth.
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<PAGE>
(d) Net2Phone and the Aplio Shareholders agree that they will, and agree
to cause their respective independent accountants and the Company to, cooperate
and assist in the preparation of the Closing Balance Sheet and the calculation
of Closing Tangible Net Worth and in the conduct of the audits and reviews
referred to in this Section, including without limitation, the making available
to the extent necessary any books, records, work papers and personnel.
2.6 Post-Closing Adjustment of Purchase Price.
-----------------------------------------
(a) For purposes of this Agreement, "Final Tangible Net Worth" shall mean
Closing Tangible Net Worth as finally determined pursuant to Section 2.5, and
"Adjustment Amount" shall mean the excess, if any, of Target Tangible Net Worth
over Final Tangible Net Worth.
(b) After determination of the Adjustment Amount, the Adjustment Holdback
Amount shall be paid as follows:
(i) if the Adjustment Amount is greater than zero but less than the
Adjustment Holdback Amount, the Adjustment Amount shall be paid to
Net2Phone from the Adjustment Holdback Amount and the remaining balance of
the Adjustment Holdback Amount shall be paid to the Aplio Shareholders as
allocated in Schedule 2.2;
(ii) if the Adjustment Amount is greater than the Adjustment Holdback
Amount, (x) the entire amount of the Adjustment Holdback Amount shall be
paid to Net2Phone and (y) and the excess of the Adjustment Amount over the
Adjustment Holdback Amount shall be paid by delivery to Net2Phone of shares
of Net2Phone Common Stock having an aggregate Market Value at the date of
delivery equal to such excess; and
(iii) If the Adjustment Amount is zero, the entire amount of the
Adjustment Holdback Amount shall be paid to the Aplio Shareholders as
allocated in Schedule 2.2.
SECTION 3.
----------
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
The Company hereby represents and warrants to Net2Phone that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement. The representations and warranties which follow are deemed
to be repeated on the Closing Date.
3.1 Organization, Qualification, and Corporate Power. The Company and each of
------------------------------------------------
its Subsidiaries is a corporation or other legal entity duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
organization. The Company and each of its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where the absence of such qualification could have a Material Adverse Effect on
the Company or such Subsidiary. Schedule 3.1 lists each of the jurisdictions in
which the Company or any Subsidiary possesses any foreign qualification or
license and lists such license held in such jurisdiction. The Company and each
of its Subsidiaries has all the power and authority necessary to carry on the
businesses in which it is engaged and to own, lease and use the respective
properties owned, leased and/or used by it. Attached to Schedule 3.1 is a true
and
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complete copy of the certificate of incorporation and by-laws or equivalent
organizational documents for the Company and each of its Subsidiaries as in
effect on the date hereof.
3.2 Noncontravention. Neither the execution and delivery of this Agreement nor
----------------
the consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, law, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Entity or court
to which the Company or any Subsidiary or any of their respective properties or
assets is subject or any provision of the organizational documents of the
Company and its Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default (or any event which, with notice or lapse of time, or both,
would constitute a default) under, result in the acceleration of, create in any
party a put right or repurchase obligation or the right to accelerate,
terminate, modify or cancel, create any Security Interest or Encumbrance or
require any notice, under any Contract to which the Company or any Subsidiary is
a party or by which it is bound or to which any of its properties or assets is
subject, except for any such matters identified on Schedule 3.2. Except as set
forth on Schedule 3.2, neither the Company or its Subsidiaries nor any Aplio
Shareholder need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency or
other Person in order to consummate the transactions contemplated hereby.
3.3 Capitalization of the Company. The authorized capital stock of the Company
-----------------------------
consists of 21,696,966 shares of common stock, FF1 par value per share (the
"Company Common Stock"), all of which are issued and outstanding. All of the
issued and outstanding shares of Company Common Stock have been duly authorized
and validly issued and are fully-paid and non-assessable. As of the Closing, (a)
no subscription, warrant, option, convertible security or other right
(contingent or otherwise) to purchase or acquire any shares of capital stock of
the Company is authorized or outstanding, (b) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (c) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. All of the issued and outstanding shares of capital stock of
the Company have been offered, issued and sold by the Company in compliance with
applicable securities laws. Except as set forth on Schedule 3.3, the Company
does not have (a) any shares of capital stock issued or reserved for issuance,
or (b) any Contract of any character to which the Company or any Affiliate of
the Company is a party or subject relating to its capital stock or otherwise
representing a right to receive any of its capital stock, nor are there any
pending or threatened claims or demands for, a direct or indirect equity
interest in the Company, including, without limitation, any option, warrant,
right or call or any stock appreciation, phantom stock, profit participation or
similar rights. Except for agreements which are to be terminated at the Closing
and which are set forth on Schedule 3.3, there are no voting trusts, proxies or
any other agreements or understandings with respect to the voting of the capital
stock of the Company.
3.4 Subsidiaries. Schedule 3.4 sets forth for each Subsidiary of the Company
------------
(i) its name and jurisdiction of organization, (ii) the number of shares of
authorized capital stock of each class of its capital stock, (iii) the number of
issued and outstanding shares of each class of its capital stock, and (iv) the
number of shares of its capital stock held in treasury. All of the issued and
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outstanding shares of capital stock of each Subsidiary of the Company have been
duly authorized and are validly issued, fully paid, and nonassessable. The
Company holds of record and owns beneficially all of the outstanding shares of
each Subsidiary of the Company, free and clear of any restrictions on transfer
(other than restrictions under the Securities Act or any national or state
securities laws), Taxes, Security Interests and Encumbrances. Except as set
forth on Schedule 3.4, there are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require any of the Company and its
Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any
of its Subsidiaries or that could require any Subsidiary of the Company to
purchase or redeem or to issue, sell, or otherwise cause to become outstanding
any capital stock of the Company or any Subsidiary. There are no outstanding
stock appreciation, phantom stock, profit participation, or similar rights with
respect to any Subsidiary of the Company. Except as set forth on Schedule 3.4,
there are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary of the Company.
None of the Company and its Subsidiaries controls directly or indirectly or has
any direct or indirect equity participation in any corporation, partnership,
trust, or other business association or entity which is not a Subsidiary of the
Company.
3.5 Financial Statements. Schedule 3.5 includes the following: (a) the
--------------------
Company's audited consolidated balance sheet for the fiscal year ended December
31, 1999 (the "Latest Balance Sheet") and statements of income, cash-flow and
shareholders' equity for the twelve-month period ended December 31, 1999; (b)
the Company's audited consolidated balance sheet and statements of income, cash-
flow and shareholders' equity as of and for the twelve-month periods ended
December 31, 1997 and December 31, 1998; and (c) the Company's unaudited
consolidated balance sheet and statements of income, cash flow and shareholder's
equity as of and for the four-month period ended March 31, 2000 (all such items
mentioned previously in this Section 3.5, are referred to herein as the
"Financial Statements"). The Financial Statements (i) are correct and complete
in all material respects, (ii) are consistent with the books and records of the
Company (which books and records are correct and complete, and are maintained in
accordance with applicable regulations), and (iii) have been prepared in
conformity with French GAAP applied on a consistent basis and present fairly the
financial position of the Company at and as of the dates indicated and the
results of its operations for the periods specified, subject to the absence of
footnotes for unaudited Financial Statements and to normal year-end adjustments
for recurring accruals (which are not material, either individually or in the
aggregate) in the case of interim financial statements.
3.6 Litigation. Except as set forth in Schedule 3.6, there are (and have been)
----------
no judgments or decrees existing against the Company or any of its Subsidiaries
and no existing, pending (or to the Knowledge of the Company threatened)
lawsuits, actions, proceedings, claims, complaints, injunctions, orders or
investigations by or before any court or Governmental Entity, (i) against or by
the Company or any of its Subsidiaries or (ii) which seeks to enjoin any aspect
of the transactions contemplated hereby. To the Knowledge of the Company, there
are no existing facts or circumstances which give the Company or any of its
Subsidiaries any reason to believe that any such action, suit, proceeding,
hearing or investigation may be brought or threatened by or against the Company
or any of its Subsidiaries.
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<PAGE>
3.7 Absence of Undisclosed Liabilities. The Company does not have any liability
----------------------------------
(whether known or unknown) except for (a) liabilities shown on the Latest
Balance Sheet, (b) liabilities which have arisen since the date of the Latest
Balance Sheet (including losses, in an aggregate amount not to exceed $900,000,
from continuing operations of the Company as reflected on the Company's
unaudited statement of income for the three-month period ended March 31, 2000)
in the Ordinary Course (none of which is the result of any breach of contract,
tort, breach of warranty or infringement by the Company or any Subsidiary), (c)
contractual liabilities incurred in the Ordinary Course (other than claims for
breach of any contract) under any Contract required to be set forth in Schedule
3.16 which are not required by French GAAP to be reflected on the Latest Balance
Sheet, and (d) liabilities in the amounts set forth in Schedule 3.7.
3.8 Taxes.
-----
(a) Except as set forth on Schedule 3.8, the Company and each of its
Subsidiaries have duly and timely filed all Tax Returns and related information
(including, without limitation, information returns) required to be filed by it
on or before the date hereof. All such Tax Returns have been prepared and filed
in compliance with all applicable laws and regulations and are true, correct and
complete in all material respects. All Taxes owed by the Company and each of its
Subsidiaries, whether or not shown on any Tax Return, have been timely paid or
are subject to adequate reserves. The Company has made available to Net2Phone
correct and complete copies of its French income Tax Returns for the 1997, 1998
and 1999 taxable years and the corresponding balance sheets of the Company as of
the end of each such year. The Company and each of its Subsidiaries have
retained copies of all written information or statements (including but not
limited to Tax Returns) made to the tax authorities or, as the case may be, to
any competent authority. All monies required to be collected or withheld by the
Company or any of its Subsidiaries for Taxes (including but not limited to
income taxes, social security and other contributions with respect to payroll),
have been collected and withheld, and either paid to the appropriate agency or
authority, set aside in accounts for such purpose, or accrued, reserved against,
and entered upon the books of the Company or any of its Subsidiaries, and the
Company and any of its Subsidiaries are not and will not become liable for Taxes
for failure to comply with any of the foregoing.
(b) Except as set forth on Schedule 3.8(b):
(i) neither the Company nor any of its Subsidiaries is or has been
the subject of a Tax audit or examination, in which any Tax has or may be
assessed or collected by any taxing authority;
(ii) neither the Company nor any of its Subsidiaries has received
from any taxing authority any written notice of proposed adjustment,
deficiency, underpayment of Taxes or any other such written notice which
has not been satisfied by payment or been withdrawn, and no claims have
been asserted in writing relating to such Taxes against the Company or any
such Subsidiary;
(iii) the Company has no Liability for the Taxes of any Person (other
than the Company) as a transferee or successor, by contract, or otherwise;
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<PAGE>
(iv) the Company and each of its Subsidiaries has complied in all
material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes;
(v) there are no liens for Taxes on any assets of the Company or any
of its Tax Affiliates except liens for Taxes not yet due. No deficiency for
any Tax has been proposed, asserted or assessed against the Company or any
of its Tax Affiliates which has not been resolved and paid in full or
adequately reserved for in its Financial Statements, and there are no
outstanding waivers or consents given by the Company or any of its Tax
Affiliates regarding the application of the statute of limitations with
respect to any Taxes or the period for filing any Tax Returns; and
(vi) neither the Company nor any of its Tax Affiliates is a party to
or bound by any Tax indemnification, Tax allocation or Tax sharing
agreement with any Person or has any current or potential contractual
obligation to indemnify any other Person with respect to Taxes; and
(c) The Company has established and until the Closing will maintain on its
books and records reserves adequate to pay all Taxes accrued but not yet due and
payable in accordance with French GAAP, and such reserves are reflected on the
Financial Statements to the extent required.
3.9 Intellectual Property.
---------------------
(a) The Company or one of its Subsidiaries owns all right, title and
interest to, or has the right to use, pursuant to a valid license, all
Intellectual Property used in or necessary for the operation of its business as
currently conducted and as presently proposed to be conducted (collectively, the
"Company Intellectual Property"). To the Knowledge of the Company, no other
person or entity (other than licensors of software that is generally
commercially available, licensees of the Company Intellectual Property under the
agreements disclosed pursuant to paragraph (c) below, licensors of Company
Intellectual Property under the agreements disclosed pursuant to paragraph (d)
below and non-exclusive licensees of the Company Intellectual Property in the
Ordinary Course of the Company's business) has any rights to any of the Company
Intellectual Property and to the Knowledge of the Company no other person or
entity has or is infringing, violating or misappropriating any of the Company
Intellectual Property. The transactions contemplated by this Agreement do not
and shall not adversely affect the Company's right, title and interest in and to
the Company Intellectual Property necessary for the operation of its business as
currently conducted and as presently proposed to be conducted.
(b) The Company has not received any complaint, claim or notice alleging
any infringement, violation or misappropriation of any Company Intellectual
Property of any other person or entity. The Company has not received any written
offer to license any Company Intellectual Property of any other person or
entity.
(c) Schedule 3.9(c) identifies each (i) patent that has been issued or
assigned to the Company, (ii) pending patent application that the Company has
made, (iii) any copyright or trademark registration or application owned by the
Company, (iv) internet domain names owned or used by the Company, (v)
unregistered trade names and corporate names owned or used by
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<PAGE>
the Company, (vi) unregistered trademarks, service marks, copyrights and
computer software owned or used by the Company, and (vii) license or other
agreements pursuant to which the Company has granted any exclusive rights or
rights to receive source code to any third party with respect to any Company
Intellectual Property.
(d) Schedule 3.9(d) identifies each agreement with a third party pursuant
to which the Company or its Subsidiaries obtains rights to Intellectual Property
incorporated in any of the Company's products or otherwise material to the
business of the Company (other than software that is generally commercially
available) that is owned by a party other than the Company. Other than license
fees for software that is generally commercially available, and except as set
forth on Schedule 3.9, the Company is not obligated to pay any future royalties
or other compensation after the date hereof to any third party in respect of its
ownership, use or license of any of its Intellectual Property.
(e) Except as set forth on Schedule 3.9, all of the Company Intellectual
Property has been created by employees of the Company within the scope of their
employment by the Company or by independent contractors of the Company who have
executed agreements expressly assigning all right, title and interest in such
Intellectual Property to the Company.
(f) The Company has taken all necessary actions to maintain and protect
the Intellectual Property which it owns. To the Knowledge of the Company, the
owners of any Intellectual Property licensed to the Company have taken all
necessary actions to maintain and protect the Intellectual Property which is
subject to such licenses.
3.10 Environmental, Health, and Safety Matters.
-----------------------------------------
(a) Except as set forth on Schedule 3.10(a), (i) the Company and its
Subsidiaries have complied with, and are in compliance with, all applicable
Environmental, Health, and Safety Requirements, in all material respects, (ii)
without limiting the generality of the foregoing, the Company and its
Subsidiaries have obtained and complied with, and are in compliance with, in all
material respects, all permits, licenses and other authorizations that are
required pursuant to the Environmental, Health, and Safety Requirements for the
occupation of their facilities and the operation of their business, (iii) the
Company and its Subsidiaries have not received any oral or written notice or
other information regarding any actual or alleged material violation of
applicable Environmental, Health, and Safety Requirements, or any material
liability, potential liability or loss contingency arising under applicable
Environmental, Health, and Safety Requirements (including any investigatory,
remedial or corrective obligations), (iv) the Company and its Subsidiaries have
not treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any Hazardous Material or owned or operated
any property or facility (and no such property or facility is contaminated by
any Hazardous Material) in a manner that has given or would be expected to give
rise to any material liability, including (to the extent applicable in any
jurisdiction) liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant
applicable Environmental, Health, and Safety Requirements, and (v) the Company
and its Subsidiaries have not, either expressly or by operation of law, assumed,
undertaken or otherwise become subject to any material liability or any
investigatory, remedial or corrective obligation of any other Person relating to
applicable Environmental, Health, and Safety Requirements.
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<PAGE>
(b) There are no environmental investigations, studies, reviews, audits,
tests or other analyses of environmental conditions, issues or liabilities
conducted by or which are in the possession, custody or control of the Company
or its Subsidiaries relating to the operation of the Company's business or any
facility owned, leased or operated by the Company, except as listed on Schedule
3.10(b), copies of which have been furnished to Net2Phone.
3.11 Employment Matters.
------------------
(a) Schedule 3.11 sets forth a list of all written contracts between the
Company and its Subsidiaries and their respective employees, officers and
directors (the "Employment Contracts"), which list further indicates each such
employees' current and committed future (if any) compensation, whether in the
form of salaries, bonuses, commissions, profit sharing, vacation pay or other
supplemental compensation now or hereafter payable, together with complete
indication as to (i) any provision of an Employment Contract that differs in any
material way from the provisions of the standard employment contract of the
Company or the relevant Subsidiary, (ii) any arrangements involving loans or
guarantees given by the Company or by a Subsidiary to or for any employee
(indicating the amount involved), and (iii) any arrangements involving any
indebtedness of the Company or any Subsidiary to any employee other than
salaries, bonuses, vacation time, and expenses (indicating the amount involved).
(b) The Company is subject in France to the SYNTEC Collective Bargaining
Agreement. Neither the Company nor any of its Subsidiaries is experiencing, or
has experienced, any material labor problems, and the Company does not have
Knowledge of any facts which lead it to believe that any material labor problems
will develop. The Company or any of its Subsidiaries has no obligation toward
any employee for a termination notice period or for a termination indemnity
greater than the notice period and indemnity required by applicable law and by
the applicable collective bargaining agreement. Except as disclosed in Schedule
3.11, each employee is bound by a covenant not to compete.
(c) The Company and its Subsidiaries are in compliance in all respects
with each of the Employment Contracts, and has either paid or made adequate
reserves in the Financial Statements for the payment of all compensation payable
under such Employment Contracts, whether in the form of salaries, bonuses,
commissions, profit sharing, vacation pay, or other supplemental compensation.
All Employment Contracts are in full force and effect and are expected by the
Company to be in full force and effect on the Closing Date.
(d) There are no health or life insurance, pension, retirement, bonus,
incentive, profit-sharing, stock option or stock purchase, insurance, severance
or other employee benefit plans or arrangements or customary practices, in which
any employee of the Company or any Subsidiary participates ("Benefit Plans")
except those listed on Schedule 3.11. The Company or its Subsidiary complies
with its obligations under applicable law and regulations in connection with the
Benefit Plans.
(e) All liabilities relating to the Benefit Plans, including, without
limitation, any retirement Benefit Plans, have been adequately reserved against
in the Financial Statements or are otherwise clearly and completely disclosed in
the notes to the Financial Statements
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<PAGE>
(f) With respect to each Benefit Plan, the Company has provided Net2Phone
with true, complete and correct copies of (to the extent applicable) all
documents pursuant to which the Benefit Plan is maintained and administered.
3.12 Accounts Receivable. All accounts receivable and factored receivables of
-------------------
the Company's business, including, without limitation, all accounts receivable
that have been assigned by the Company to a bank pursuant to French Law No. 81-1
of January 2, 1981, as amended (Cession Dailly), have arisen from bona fide
transactions in the Ordinary Course. The Financial Statements contain adequate
reserves for all doubtful accounts and factored receivables.
3.13 Tangible Property.
-----------------
(a) The Company and its Subsidiaries own or lease all buildings,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted and as presently proposed to be conducted. Schedule 3.13
sets forth a true and complete list of all real property owned, leased or used
by the Company and its Subsidiaries. Except as set forth in Schedule 3.13, to
the Knowledge of the Company (i) the identified owner of such real property (if
not the Company or its Subsidiaries) has good and marketable title to the parcel
of real property, and has all necessary authority to lease such real property to
the Company and/or its Subsidiaries, and (ii) there are no parties (other than
the Company or its Subsidiaries) in possession of such parcel of real property
which interferes with the use of such property by the Company and its
Subsidiaries. Schedule 3.13 also sets forth a list of all of the leased and
subleased parcels of real property subject to leases and subleases in favor of
the Company and its Subsidiaries which evidence leasehold or subleasehold
interests of the Company and its Subsidiaries in such properties and designates
those leases which require consent of a lessor or sublessor in connection with
the transactions contemplated hereby.
(b) Except as set forth in Schedule 3.13, the Company has all easements,
certificates of occupancy, permits, approvals, franchises, authorizations and
other such rights, including but not limited to easements for all utilities
(including without limitation all power lines, water lines and sewers) and
roadways necessary to conduct the business conducted on such properties.
(c) All of the Company's and its Subsidiaries' buildings, improvements
thereto, machinery, equipment and other tangible personal property are in good
condition and repair in all respects, except for ordinary wear and tear not
caused by neglect, and are useable by the Company and its Subsidiaries in the
operation of its business in the Ordinary Course. The assets and properties of
the Company and its Subsidiaries include all the tangible property and assets
necessary to the conduct of its business as presently conducted and all tangible
property and assets which were used by the Company and its Subsidiaries as
reflected on the Latest Balance Sheet, other than assets (which are not material
to the Company, either individually or in the aggregate) sold or otherwise
disposed of in the Ordinary Course to non-affiliated third parties.
3.14 Broker's Fees. Neither the Company nor any Subsidiary has liability or
-------------
obligation to pay any fees or commissions to any broker, finder, or similar
agent with respect to the transactions contemplated by this Agreement.
3.15 Contracts and Obligations. Schedule 3.15 sets forth a list of all
-------------------------
agreements or commitments of any nature to which the Company or its Subsidiaries
is a party or by which it or
-18-
<PAGE>
its properties or assets is bound, including without limitation (a) each
agreement which requires future expenditures by the Company or its Subsidiaries
in excess of $25,000 in any twelve-month period or which might result in
payments to the Company or its Subsidiaries in excess of $25,000 in any twelve-
month period, (b) all employment and consulting agreements, employee benefit,
bonus, pension, profit-sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative agreements, (c) any
agreement with any stockholder, officer or director of the Company or its
Subsidiaries, or any Affiliate of such persons, including without limitation any
agreement or other arrangement providing for the furnishing of services by,
rental of real property or personal property from, or otherwise requiring
payments to, any such person or entity, (d) any agreement relating to
intellectual property rights, and (e) any agreement restricting the ability of
the Company or its Subsidiaries from freely engaging in any business activity in
any location. The Company or its Subsidiaries have delivered to Net2Phone
correct and complete copies of each of the foregoing agreements. Neither the
Company nor its Subsidiaries are in breach or violation of any of the foregoing
agreements (nor will any breach arise with lapse of time, giving of notice, or
both) and to the Knowledge of the Company no other party thereto is in breach or
violation thereof. All of such agreements and contracts are valid, binding and
in full force and effect against the Company or its Subsidiaries and to the
Knowledge of the Company against each other party thereto.
3.16 Absence of Improper Payments. The Company and its Subsidiaries have not
----------------------------
(a) made any contributions, payments or gifts of its property to or for the
private use of any governmental official, employee or agent where either the
payment or the purpose of such contribution, payments or gift is illegal under
the laws of France, Israel or the United States or any other jurisdiction; (b)
established or maintained any unrecorded fund or asset for any purpose, or made
any false or artificial entries on its books or records for any reason; (c) made
any payments to any Person with the intention or understanding that any part of
such payment was to be used for any other purpose other than that described in
the documents supporting the payment; or (d) made any contribution, or
reimbursed any political gift or contribution made by any other Person, to
candidates for public office where such contribution would be in violation of
applicable law.
3.17 Insurance. The Company and its Subsidiaries maintain insurance policies,
---------
self-insurance programs and other forms of insurance in such amounts, with such
deductibles and retained amounts, and against such risks and losses, as are
reasonable for the conduct of the business of the Company. Schedule 3.17 lists
all such insurance policies, self-insurance programs and other forms of
insurance maintained on the date hereof by or on behalf of the Company and its
Subsidiaries.
3.18 Employees. To the Knowledge of the Company, no executive officer, or group
---------
of employees, has any plans to terminate employment with the Company or its
Subsidiaries. Except as disclosed on Schedule 3.18, neither the Company nor any
of its Subsidiaries (i) is a party to or bound by any collective bargaining
agreement, or has experienced any strikes, grievances or other collective
bargaining disputes; or (ii) has committed any labor practice in violation of
applicable law.
3.19 Year 2000 Compliance. Each of the software, computer firmware, computer
--------------------
hardware (whether general or special purpose) or other similar or related items
of automated, computerized
-19-
<PAGE>
or software systems that are used or relied on by the Company and its
Subsidiaries, either are Millennium Complaint (as defined below), or the failure
by any such item to be Millennium Complaint will not result in a Material
Adverse Effect on the Company. Each of the products sold and/or provided by the
Company and its Subsidiaries to their customers, whether manufactured by the
Company or by a third-party manufacturer, either are Millennium Compliant (as
defined below), or the failure by any such product to be Millennium Compliant
will not result in a Material Adverse Effect on the Company. For purposes of
this Section 3.19, the term "Millennium Compliant" means that such products are
designed to be used prior to, during and after the calendar year 2000 A.D., and
each product will operate during each such time period without error relating to
date data, including any error relating to, or the product of, date data which
represents or references different centuries or more than one century.
Specifically, the products will correctly perform all data-related operations
(i) without human intervention, (ii) without regard to whether any data involved
in the operation occurs in the 20th or 21st century, and (iii) without regard to
the date and the time that the calculation is performed.
3.20 Affiliated Transactions. Except as disclosed in Schedule 3.20, no officer,
-----------------------
director, employee, stockholder or Affiliate of Allia, the Company or its
Subsidiaries or any individual related by blood, marriage or adoption to any
such individual or any entity in which any such person or individual owns any
beneficial interest, is a party to any, Contract or transaction with the Company
or its Subsidiaries or has any interest in any property used by the Company or
its Subsidiaries.
3.21 Compliance with Laws. Neither the Company nor any of its Subsidiaries have
--------------------
violated or failed to comply with any law, rule, statute, judgment, order or
decree, of any Governmental Entity applicable to it or its business, operations,
employees or properties. The Company and the Subsidiaries hold all permits,
licenses, certifications and/or approvals necessary to sell or perform its
products and services in the jurisdictions where such products and services are
sold or performed.
3.22 No Material Adverse Change. Except as disclosed in Schedule 3.22, since
--------------------------
December 31, 1999, there has been no material adverse change in the business,
prospects, value, condition (financial or otherwise), or results of operations
of the Company and its Subsidiaries and no event has occurred which has had or
reasonably could be expected to have a Material Adverse Effect on the Company
and its Subsidiaries.
3.23 Absence of Certain Developments. Except as disclosed in the Financial
-------------------------------
Statements and as disclosed in Schedule 3.23, and except for the transactions to
occur at the Closing as expressly provided by this Agreement, since December 31,
1999, the Company has been operated only in the Ordinary Course. Without
limiting the generality of the foregoing, except as disclosed on Schedule 3.23,
since December 31, 1999:
(a) no party (including the Company) has accelerated, terminated,
modified or canceled any Contract (or series of related Contracts) involving
more than $25,000 to which the Company or any Subsidiary is a party or by which
any of them is bound;
(b) neither the Company nor any Subsidiary has imposed (or allowed to be
imposed) any Security Interest upon any of its assets, tangible or intangible,
except for immaterial Security Interests imposed in the Ordinary Course;
-20-
<PAGE>
(c) neither the Company nor any Subsidiary has made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and acquisitions)
either involving more than $250,000 or that is outside the Ordinary Course;
(d) neither the Company nor any Subsidiary has issued any note, bond, or
other debt security or created, incurred, assumed, or guaranteed any
Indebtedness or capitalized lease obligation either involving more than $100,000
singly or $200,000 in the aggregate;
(e) neither the Company nor any Subsidiary has delayed or postponed the
payment of accounts payable and other liabilities outside the Ordinary Course;
(f) neither the Company nor any Subsidiary has granted any license or
sublicense of any rights under or with respect to any Company Intellectual
Property either involving more than $100,000 or outside the Ordinary Course;
(g) there has been no change made or authorized in the organizational
documents of the Company or any Subsidiary;
(h) neither the Company nor any Subsidiary has issued, sold or otherwise
disposed of any of its capital stock, or granted or entered into any option,
warrant or other Contract to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(i) neither the Company nor any Subsidiary has declared, set aside or paid
any dividend or made any distribution with respect to its capital stock (whether
in cash or in kind) or redeemed, purchased or otherwise acquired any of its
capital stock;
(j) neither the Company nor any Subsidiary has entered into a Contract or
any other transaction with any of its Affiliates;
(k) neither the Company nor any Subsidiary has entered into any Employment
Contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such Contract or agreement;
(l) neither the Company nor any Subsidiary has granted any increase in the
base compensation of any of its employees or made any other change in employment
terms for any of its officers or employees;
(m) neither the Company nor any Subsidiary has adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance or other plan or
contract for the benefit of any of its directors, officers and employees (or
taken any such action with respect to any other Benefit Plan (as hereinafter
defined);
(n) to the Knowledge of the Company, there has not been any other
occurrence, event, incident, action, failure to act or transaction outside the
Ordinary Course involving the Company or any Subsidiary; and
-21-
<PAGE>
(o) neither the Company nor any Subsidiary has committed to do any of the
foregoing.
3.24 Business Plan and Forecasts. Schedule 3.24 contains the most recent
---------------------------
business plan and forecasts of the Company as prepared in the Ordinary Course
and not for purposes of the transactions contemplated hereby, which were based
on the Company's reasonable assumptions and which the Company believed it had
reasonable prospects of achieving, subject only to the receipt of the financing
on a timely basis as set forth therein.
SECTION 4.
----------
REPRESENTATIONS AND WARRANTIES CONCERNING THE APLIO SHAREHOLDERS
Each Aplio Shareholder represents and warrants to Net2Phone severally
as to itself but not for any other Aplio Shareholder, that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement. The representations and warranties which follow are deemed to be
repeated on the Closing Date.
4.1 Organization and Power. The Aplio Shareholder has all power and authority
----------------------
necessary to enter into and perform its obligations under this Agreement.
4.2 Authorization of Stock Purchase. This Agreement has been duly authorized,
-------------------------------
executed and delivered by the Aplio Shareholder and constitutes the valid and
legally binding obligation of such Aplio Shareholder, enforceable against such
Aplio Shareholder in accordance with its terms and conditions.
4.3 Noncontravention. Neither the execution and delivery of this Agreement
----------------
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, law injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Entity, or
court to which the Aplio Shareholder is subject and with respect to any Aplio
Shareholder which is an entity, any provision of its organizational documents or
(ii) conflict with, result in a breach of, constitute a default (or any event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the acceleration of, create in any party a put right or repurchase
obligation or the right to accelerate, terminate, modify or cancel, create any
Security Interest or Encumbrance or require any notice, under any Contract to
which such Aplio Shareholder is a party or by which it is bound or to which any
of its shares of Acquired Stock is subject. The Aplio Shareholder is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Entity or other Person
in order to consummate the transactions contemplated hereby.
4.4 The Acquired Stock. The Aplio Shareholder beneficially owns and has the
------------------
sole and unrestricted voting power with respect to the Acquired Stock indicated
opposite such Aplio Shareholder's name on Schedule 2.2. The Aplio Shareholder
owns such Acquired Stock free and clear of all Encumbrances.
-22-
<PAGE>
4.5 Securities Law Issues.
---------------------
(a) The Aplio Shareholder has received and had an opportunity to review
Net2Phone's Annual Report on Form 10-K for the fiscal year ended July 31, 1999
and Net2Phone's Quarterly Report on Form 10-Q for the quarter ended January 31,
2000 and the Aplio Shareholder is aware of and has access to all other filings
by Net2Phone with the SEC since January 31, 1999.
(b) The Aplio Shareholder is familiar with Rule 144 of the Securities Act
and understands and agrees that (i) the resale limitations imposed thereby will
be applicable to all Affiliates of Net2Phone and (ii) any stock certificate
evidencing shares of Net2Phone Common Stock issued to an Aplio Shareholder may
(as determined by Net2Phone in its sole discretion) have the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), (II) IN
CONFORMITY WITH THE VOLUME AND OTHER LIMITATIONS OF RULE 144
OF THE ACT, EVIDENCED BY A LETTER OF REPRESENTATION IN A
FORM REASONABLY SATISFACTORY TO THE CORPORATION, OR (III) IN
A TRANSACTION WHICH, IN THE OPINION OF INDEPENDENT COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION OR AS DESCRIBED
IN A "NO ACTION" OR INTERPRETIVE LETTER FROM THE STAFF OF
THE SECURITIES AND EXCHANGE COMMISSION, IS NOT REQUIRED TO
BE REGISTERED UNDER THE ACT.
4.6 Broker's Fee. Except as set forth on Schedule 4.6 or Schedule 5.8, the
------------
Aplio Shareholder has no liability or obligation for any fees or commissions to
any broker, finder or similar agent with respect to the transactions
contemplated by this Agreement, and such fees or commissions (if any) shall be
paid by the Aplio Shareholders at and as of the Closing.
SECTION 5.
----------
REPRESENTATIONS AND WARRANTIES CONCERNING
ALLIA AND THE ALLIA SHAREHOLDERS
Each Allia Shareholder represents and warrants to Net2Phone jointly
and severally with respect to matters concerning Allia and severally (but not
jointly) as to itself but not for any other Allia Shareholder with respect to
matters concerning such Allia Shareholder, that the statements contained in this
Section 5 are correct and complete as of the date of this Agreement. The
representations and warranties which follow are deemed to be repeated on the
Closing Date.
-23-
<PAGE>
5.1 Organization and Power With Respect to the Allia Shareholder. The Allia
------------------------------------------------------------
Shareholder has all power and authority necessary to enter into and perform its
obligations under this Agreement.
5.2 Organization, Qualification, Power, and Liabilities Concerning Allia.
--------------------------------------------------------------------
Allia is a corporation or other legal entity duly organized, a corporation or
other legal entity duly organized, validly existing, and in good standing under
the laws of its jurisdiction of organization. Allia is duly authorized to
conduct its business and is in good standing under the laws of each jurisdiction
where the absence of such qualification would have a Material Adverse Effect on
Allia or its Shareholders. Allia has all power and authority necessary to carry
on the businesses in which it is engaged and to own and use the properties owned
and used by it. Allia holds marketable title to all shares of capital stock of
Aplio as set forth on Schedule 2.2, free and clear of all Encumbrances. Allia
has been formed exclusively for the purpose of ownership of such shares and has
never engaged in any business or activity other than the ownership of such
shares. Allia has no assets other than shares of capital stock of Aplio and has
no liabilities. Each Allia Shareholder agrees to forever and (except as provided
in this Section 5.2) without limitation indemnify and hold Net2Phone and its
affiliates harmless from and against any tax or other liability relating to or
arising in connection with any fact, event or circumstance existing at any time
at or prior to the Closing related to Allia; provided that the Allia
Shareholders shall have no liability (i) for up to $750,000 of withholding or
similar taxes arising in connection with the liquidation or dissolution of Allia
at any time after the Closing, and (ii) to the extent that any such liability
results from a change in law at any time after the Closing.
5.3 Capitalization of Allia. The authorized capital stock of Allia consists of
-----------------------
400 shares of common stock, stated capital of 100FL par value per share (the
"Allia Common Stock). All of the issued and outstanding shares of Allia Common
Stock have been duly authorized and validly issued and are fully-paid and non-
assessable. Except as set forth on Schedule 5.3, (a) no subscription, warrant,
option, convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock of Allia is authorized or
outstanding, (b) Allia has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any shares of its capital stock, any evidences
of indebtedness or assets of Allia, and (c) Allia has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. All of the issued and outstanding shares of
capital stock of Allia have been offered, issued and sold by Allia in compliance
with all applicable laws. Except as set forth on Schedule 5.3, Allia does not
have (a) any shares of capital stock issued or reserved for issuance, or (b) any
Contract of any character to which Allia or any Affiliate of Allia is a party or
subject relating to its capital stock or otherwise representing a right to
receive any of its capital stock, nor are there any pending or threatened claims
or demands for, a direct or indirect equity interest in Allia, including,
without limitation, any option, warrant, right or call or any stock
appreciation, phantom stock, profit participation or similar rights. Except for
agreements which are to be terminated at the Closing and which are set forth on
Schedule 5.3, there are no voting trusts, proxies or any other agreements or
understandings with respect to the voting of the capital stock of Allia.
5.4 Authorization of Stock Purchase. This Agreement has been duly authorized,
-------------------------------
executed and delivered by the Allia Shareholder and constitutes the valid and
legally binding obligation of
-24-
<PAGE>
such Allia Shareholder, enforceable against such Allia Shareholder in accordance
with its terms and conditions.
5.5 Noncontravention. Neither the execution and delivery of this Agreement nor
----------------
the consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, law, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Entity, or
court to which Allia or the Allia Shareholder is subject and with respect to
Allia or any Allia Shareholder which is an entity, any provision of its
organizational documents or (ii) conflict with, result in a breach of,
constitute a default (or any event which, with notice or lapse of time, or both,
would constitute a default) under, result in the acceleration of, create in any
party a put right or repurchase obligation or the right to accelerate,
terminate, modify or cancel, create any Security Interest or Encumbrance or
require any notice, under any Contract to which Allia or such Allia Shareholder
is a party or by which it is bound or to which any of its shares of Acquired
Stock is subject. Neither Allia nor any Allia Shareholder is required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any Governmental Entity or other Person in order to consummate the
transactions contemplated hereby.
5.6 The Acquired Stock. The Allia Shareholder beneficially owns and has the
------------------
sole and unrestricted voting power with respect to the Acquired Stock indicated
opposite such Allia Shareholder's name on Schedule 2.2. The Allia Shareholder
owns such Acquired Stock free and clear of all Encumbrances.
5.7 Securities Law Issues.
---------------------
(a) The Allia Shareholder has received and had an opportunity to review
Net2Phone's Annual Report on Form 10-K for the fiscal year ended July 31, 1999
and Net2Phone's Quarterly Report on Form 10-Q for the quarter ended January 31,
2000 and the Allia Shareholder is aware of and has access to all other filings
by Net2Phone with the SEC since January 31, 1999.
(b) The Allia Shareholder is familiar with Rule 144 of the Securities Act
and understands and agrees that (i) the resale limitations imposed thereby will
be applicable to all the Affiliates of Net2Phone and (ii) any stock certificate
evidencing the Net2Phone Shares issued to an Allia Shareholder may (as
determined by Net2Phone in its sole discretion) have the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), (II) IN
CONFORMITY WITH THE VOLUME AND OTHER LIMITATIONS OF RULE 144
OF THE ACT, EVIDENCED BY A LETTER OF REPRESENTATION IN A
FORM REASONABLY SATISFACTORY TO THE CORPORATION, OR (III) IN
A TRANSACTION WHICH, IN THE OPINION OF INDEPENDENT COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION OR AS DESCRIBED
IN A "NO ACTION" OR
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<PAGE>
INTERPRETIVE LETTER FROM THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION, IS NOT REQUIRED TO BE REGISTERED UNDER
THE ACT.
5.8 Broker's Fee. Except as set forth on Schedule 5.8, neither Allia nor any
------------
Allia Shareholder has any liability or obligation to any fees or commissions to
any broker, finder or similar agent with respect to the transactions
contemplated by this Agreement, and such fees or commissions (if any) shall be
paid by the Allia Shareholders at and as of the Closing
SECTION 6.
----------
REPRESENTATIONS AND WARRANTIES OF NET2PHONE
Net2Phone represents and warrants to the Aplio Shareholders that the
statements contained in this Section 6 are correct and complete as of the date
of this Agreement. The representations and warranties which follow are deemed
to be repeated on the Closing Date.
6.1 Organization, Qualification, and Corporate Power. Net2Phone is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation. Net2Phone is duly authorized to
conduct its business and is in good standing under the laws of each jurisdiction
where the absence of such qualification would have a Material Adverse Effect on
Net2Phone. Net2Phone has the corporate power and authority necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it.
6.2 Authorization of Stock Purchase. Net2Phone has full corporate power and
-------------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement has been duly executed and delivered on behalf of
Net2Phone, and constitutes the valid and legally binding obligation of
Net2Phone, enforceable against Net2Phone in accordance with its terms and
conditions.
6.3 SEC Filings. Net2Phone has made all filings with the SEC that it has been
-----------
required to make since December 31, 1998 under the Securities Act and the
Exchange Act (including any exhibits and amendments thereto). Each such filing
complied with the Securities Act and the Securities Exchange Act in all material
respects when filed. No such filing, when filed, contained any untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
SECTION 7.
----------
COVENANTS
7.1 General. Each of the Parties will use all commercially reasonable efforts
-------
to take all action and to do all things necessary, proper, and advisable in
order to consummate the transactions contemplated hereby as soon as practicable
after the date of this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 8). Each party will give any notices for
which it is responsible by law or under this or any other Contract
-26-
<PAGE>
(and will cause each of its Subsidiaries to give any notices) to any
Governmental Entity or third parties, and will use all commercially reasonable
efforts to obtain (and will cause each of its Subsidiaries to use all
commercially reasonable efforts to obtain) any governmental or third party
consents, necessary to the consummation of the transactions contemplated hereby,
including any consents, waivers, amendment or other action.
7.2 The Company's Interim Operation of Business. Prior to the Closing, except
-------------------------------------------
as otherwise expressly provided herein, the Aplio Shareholders shall cause the
Company to:
(a) except as contemplated by this Agreement, operate only in the Ordinary
Course;
(b) use all commercially reasonable efforts to keep in full force and
effect its corporate existence and all material rights, franchises, Intellectual
Property and goodwill relating to its business;
(c) use commercially reasonable efforts to retain its employees and
preserve its present relationships with customers, suppliers, contractors,
distributors and such employees;
(d) perform in all material respects all of its obligations under all
Contracts to which it is a party or by which it or its properties or assets may
be bound and not enter into, assume, create, renew, amend or terminate, or give
notice of a proposed renewal, amendment or termination of, (i) any Contract for
goods, services or office space to which the Company and its Subsidiaries is (or
would thereby be) a party or by which the Company and its Subsidiaries or any of
their properties are (or would thereby be) bound, excepting only Contracts made
in the Ordinary Course under which the aggregate payments by either party over
the term of the Contract do not exceed $25,000 in any twelve-month period, (ii)
any Contract the benefits of which (to either party) will accrue or be
increased, or the vesting of the benefits of which will be accelerated, upon
consummation of the transactions contemplated hereby (either alone or upon the
occurrence of any additional acts or events) or the value of any of the benefits
under which will be calculated on the basis of the Purchase Price or any portion
or aspect of either (including any so-called retention or similar bonuses),
(iii) any Contract relating to non-competition, or (iv) any Contract that
restricts the conduct of any line of business by the Company or any of its
Subsidiaries; provided that, without limiting the generality of the foregoing,
the Company shall not permit any acceleration of vesting of any options,
warrants, or other rights with respect to any of its capital stock and shall not
permit the termination or acceleration of any rights under any Contract
(including, without limitation, options granted to employees of the Company)
other than as required by Contracts existing as of the date hereof and listed on
Schedule 3.15.
(e) not make any single capital expenditure exceeding $25,000 or any
capital expenditures exceeding $100,000 in the aggregate;
(f) not enter into any new line of business;
(g) not enter into, renew or amend any agreement relating to employment,
salary continuation, severance, consulting, collective bargaining or otherwise
relating to the provision of personal services or payment therefor; not
institute, amend or terminate any Benefit Plan; not terminate any group health
plan that covers, as of the date of this Agreement, current or former employees
of the Company or its Subsidiaries or Affiliates or their beneficiaries; not
enter into,
-27-
<PAGE>
renew or amend any agreement that, upon the consummation of the transactions
contemplated hereby, will result in any payment (whether of severance pay or
otherwise) becoming due from Net2Phone or any of its Subsidiaries or the Company
or any of its Subsidiaries, to any officer or employee of the Company or any of
its Subsidiaries; not pay any pension or retirement allowance to any Person not
required by applicable law or an existing plan or agreement; not increase in any
manner the compensation or fringe benefits of, or pay any bonus to, any officer,
director or employee except for customary annual (or less frequent) increases in
the wages or salaries of non-managerial employees and customary annual (or less
frequent) bonuses to non-managerial employees, in each case substantially
consistent with past practice and which on an annualized basis do not increase
the aggregate personnel costs for all employees by more than three percent
(3.0%) over the levels in effect as of December 31, 1999; or not increase any
other direct or indirect compensation or employee benefit for or to any of its
officers, directors or non-managerial employees;
(h) prepare and file, on a timely basis, all Tax Returns and other Tax
reports, filings and amendments thereto required to be filed by it;
(i) deliver to Net2Phone, within fifteen (15) days of each month end from
the date hereof through the Closing Date, the Company's consolidated unaudited
balance sheets, income statements and cash flow statements as of and for the
immediately preceding month, all consistent with the applicable requirements of
Section 3.5;
(j) not declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
outstanding capital stock; except for the increase in capital required in
connection with the exercise of the warrants listed in Schedule 3.3;
(k) except for the increase in capital required in connection with the
exercise of the warrants listed in Schedule 3.3. not issue, sell, grant, pledge
or otherwise encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities, or take any action that would make the representations and
warranties set forth in Section 3.3 as applicable not true and correct in all
respects;
(l) not amend its certificate of incorporation or by-laws or other
comparable charter or organizational documents;
(m) not make any investment in or acquire by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof (or any interest therein), or
form any subsidiary or solicit or negotiate any Acquisition Proposal with
respect to any other Person;
(n) not change its accounting policies in any material respect, except as
required by French GAAP;
(o) not incur any Indebtedness in excess of $300,000 in the aggregate, or
repay any Indebtedness;
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(p) pay their own expenses and the expenses of the Company in connection
with the transactions contemplated hereby;
(q) cause its auditors to audit or re-audit any financial statements
prepared with respect to the Company and its Subsidiaries for any period as
Net2Phone may reasonably request; and
(r) not authorize or enter into any agreement or commitment to take any
action inconsistent with any of the foregoing.
Further, prior to the Closing, without the prior written consent of Net2Phone or
as otherwise expressly provided herein, neither the Company nor its Subsidiaries
will enter into any Contract or take any other action which, if entered into or
taken prior to the date of this Agreement, would cause any representation or
warranty regarding the Company to be untrue in any respect or be required to be
disclosed on any Schedule; or take any action that is intended or may reasonably
be expected to result in any of the conditions to Closing as set forth in
Section 8 not being satisfied or in a violation of this Agreement, or take or
omit to take any action which reasonably could be expected to have a Material
Adverse Effect on the Company.
7.3 Access.
------
(a) Prior to the Closing, the Company shall make available to Net2Phone
all information regarding the Company that Net2Phone reasonably may request and
shall authorize all reasonable visits to the Company's premises to make such
investigations of the business, properties, books and records of the Company and
its Subsidiaries as Net2Phone reasonably may request. Net2Phone shall coordinate
closely all such activities with the Company's President or Chief Financial
Officer and conduct any such inquiries with appropriate discretion and
sensitivity to the Company's relationships with its employees, customers and
suppliers.
(b) Prior to the Closing, upon reasonable notice and during normal
business hours, the Company shall afford Net2Phone and its officers, employees,
counsel, accountants and other authorized Representatives, such access as is
reasonably necessary to confirm that the representations and warranties of the
Company made herein are true and correct. The Company shall promptly furnish to
Net2Phone a copy of each application, report, schedule, correspondence and other
document (if any) filed by the Company with or received by the Company from any
Governmental Entity in connection with the transactions contemplated hereunder.
(c) Each Party acknowledges that certain of the information made available
to it pursuant to this Section 7.3 and otherwise in connection with the
transactions contemplated hereby may be confidential, proprietary or otherwise
nonpublic, and each Party agrees, for itself and for each of its
representatives, that it shall (i) hold in confidence all confidential
information received by it from or with regard to the other Party ("Confidential
Information") subject to the terms of this Section 7.3, (ii) disclose such
Confidential Information only to those of its representatives having a need to
know the same for purposes of negotiating or implementing the transactions
contemplated hereby, and (iii) inform each representative to whom Confidential
Information is disclosed that such information is confidential and direct such
representative not to disclose the same. Each Party shall remain responsible for
any disclosure of Confidential
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Information by any of its representatives. Each Party further agrees that, upon
the request of any other Party given following the termination or expiration of
this Agreement for any reason, the receiving Party and each of its
representatives either shall return to the requesting Party all Confidential
Information received by the receiving Party and its representatives or shall
certify that the same has been destroyed. As used herein, Confidential
Information shall not include (i) information that is or becomes generally
available to the public other than as a result of a breach of this Agreement,
(ii) information that the receiving Party demonstrates was known to it on a non-
confidential basis prior to receiving such information from the disclosing
Party, (iii) information that the receiving Party develops independently without
relying on Confidential Information, and (iv) information that becomes available
to the receiving Party on a non-confidential basis from another source if the
source was not known to or not reasonably believed by the receiving Party to be
subject to any prohibition against disclosing such information.
7.4 Notice of Developments. Prior to the Closing, each Party shall promptly
----------------------
advise the other Parties of any change or event which, to its Knowledge, has or
could reasonably be expected to have a Material Adverse Effect on it or its
ability to perform its obligations under this Agreement or which it believes
would or may be reasonably likely to cause or constitute a breach of any of its
representations, warranties or covenants contained herein or to preclude the
satisfaction of one or more of the conditions set forth in Section 8; provided,
however, that any such disclosure shall not have any effect for the purpose of
determining the accuracy of any representation or warranty when made, for
determining satisfaction of the conditions set forth in Section 8, or for
determining the compliance by the Company or any Party with any other provision
of this Agreement.
7.5 Acquisition Proposals. Prior to the earlier of (i) the Closing or (ii) the
---------------------
termination or expiration of this Agreement in accordance with the terms hereof,
the Aplio Shareholders shall not, and they shall not authorize or permit the
Company or any of its or their respective officers, directors, employees,
Affiliates, stockholders or representatives, directly or indirectly, to (i)
solicit, initiate or knowingly encourage or induce the making of any Acquisition
Proposal, (ii) negotiate with any third party with respect to any Acquisition
Proposal, (iii) endorse or recommend the Acquisition Proposal of any Person
other than the Net2Phone or any of its Subsidiaries or (iv) enter into any
Contract with any third party with the intent to effect any Acquisition
Proposal.
7.6 Press Releases and Public Announcements. Other than as required by this
---------------------------------------
Agreement, no Party shall issue any press release or make any public
announcement (whether prior to or after the Closing) relating to the subject
matter of this Agreement without the prior written approval of the other
Parties; provided, however, that Net2Phone may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case it will use
commercially reasonable efforts to advise the other Parties prior to making the
disclosure).
7.7 Covenants of each Aplio Shareholder.
------------------------------------
(a) Prior to the Closing, without the prior written consent of Net2Phone
or as otherwise expressly provided herein, each Aplio Shareholder will not, and
will not permit any of its Affiliates or the Company to, enter into any Contract
or take any other action which, if
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entered into or taken prior to the date of this Agreement, would cause any
representation or warranty regarding the Company, Allia or the Aplio Shareholder
in Sections 3, 4 or 5 to be untrue in any respect or be required to be disclosed
on any Schedule; or take any action that is intended or may reasonably be
expected to result in any of the conditions as set forth in Section 7 not being
satisfied or in a violation of this Agreement; or take or omit to be taken any
action which reasonably could be expected to have a Material Adverse Effect on
the Company or Allia.
(b) So long as this Agreement has not been terminated or expired in
accordance with the terms hereof, each Aplio Shareholder will not sell, assign,
transfer or otherwise dispose of (including, without limitation, by the creation
of any Security Interest or Encumbrance), or permit to be sold, assigned,
transferred or otherwise disposed of, any shares of capital stock of the Company
or Allia, whether such shares are held on the date of this Agreement or are
subsequently acquired, whether pursuant to the exercise of stock options or
otherwise, except (i) transfers by operation of law (in which case this
Agreement shall bind the transferee), and (ii) as Net2Phone may otherwise agree
in writing in its sole discretion.
(c) Each Aplio Shareholder agrees that, so long as this Agreement has not
been terminated or expired in accordance with the terms hereof, such Aplio
Shareholder shall, and shall instruct each of its representatives and Affiliates
to, cease and refrain from any and all activities, discussions, negotiations,
providing any information with respect to, or other actions with any Person
other than Net2Phone or any of its Subsidiaries or any of their respective
representatives with respect to the sale of shares of capital stock of the
Company or Allia to Net2Phone as contemplated by this Agreement.
(d) Each Aplio Shareholder understands that Net2Phone is a reporting
company under the Exchange Act and that, in connection therewith, Net2Phone may
be required to file with the SEC financial statements of the Company prepared in
accordance with Regulation S-X of the Securities Act of 1933, as amended ("S-X
Financials"). Accordingly, each Aplio Shareholder will use its reasonable best
efforts to furnish promptly to Net2Phone any additional information or documents
it may reasonably request which are necessary for the completion of the S-X
Financials that are within its possession or control and each Aplio Shareholder
agrees (to the extent the same are true and correct) to execute or cause its
Affiliates to execute, any customary management representation letters which are
required to permit Net2Phone's independent accountants to issue unqualified
reports with respect to audited financial statements of Net2Phone relating to
periods prior to the Closing that are to be filed pursuant to applicable legal
requirements.
7.8 Treatment as Payment of Purchase Price. All payments of the Purchase Price
--------------------------------------
under Section 2.4 hereof, including without limitation the First Anniversary
Management Payment, the Second Anniversary Management Payment, and the Third
Anniversary Payments shall be treated and characterized for all purposes
(including, without limitation, financial accounting and Tax purposes) solely as
consideration for the purchase of shares of capital stock of Aplio or Allia (as
the case may be) and not in any respect as payments of compensation relating to
the performance of services.
7.9 Stock Options
-------------
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(a) On the tenth business day following the receipt by Net2Phone of the
stockholder approval contemplated by the proxy statement calling for a meeting
of the stockholders of Net2Phone on July 6, 2000, Net2Phone shall grant to each
of the persons listed on Schedule 7.9 hereto who is then employed by Net2Phone
or one of its Subsidiaries options (the "Net2Phone Options") to purchase a
number of shares of Net2Phone Common Stock set forth opposite the name of such
person on Schedule 7.9 hereto.
(b) The Net2Phone Options shall (i) have an exercise price equal to the
closing price of shares of Net2Phone Common Stock on the day immediately prior
to the date of grant (determined in the manner provided in the stock option plan
of Net2Phone covering such grant), (ii) be subject to vesting as follows: for
(x) Net2Phone Options granted to Messrs. Tebeka, Constantini and Uzan, one-third
of the shares subject to the Net2Phone Options shall be subject to vesting on
each of the first, second and third anniversaries of the Closing
(notwithstanding the date the Net2Phone Options are actually granted), with 50%
of all Net2Phone Options subject to vesting based solely on such persons
continued employment by Net2Phone and its Subsidiaries and 50% of all Net2Phone
Options subject to vesting based upon Aplio (or a business unit of Net2Phone
containing Aplio) obtaining specified performance targets, and (y) for all other
Net2Phone Options, one-fourth of the Net2Phone Options will vest on each of the
first through fourth anniversaries of Closing, subject to the holder's continued
employment by Net2Phone, (iii) be evidenced by a stock option agreement in the
form commonly used by Net2Phone for its employee stock options, and (iv) be
subject in all respects to the terms and conditions in the stock option plan
pursuant to which the Net2Phone Options shall be granted.
(c) In the event Net2Phone fails for any reason to grant the Net2Phone
Options as provided herein prior to the date which is six months after the
Closing, the salary payable by Net2Phone to each of its employees entitled to
receive Net2Phone Options under this Section 7.9 shall be increased to 150% of
the rate at which salary was payable to such employees immediately prior to such
time; provided that if Net2Phone Options are later granted to such employees as
provided herein, the rate of salary payable to such persons shall be reduced to
the rate payable immediately prior to such increase.
(d) In the event Net2Phone creates a separate entity in the business of
developing and marketing Internet telephony appliances, the Net2Phone Options
may be exchanged (simultaneously with the closing of the events described in
clauses (x) and (y) below) at the option of the holder thereof into options to
acquire shares of capital stock of such entity having an aggregate exercise
price equal to the aggregate exercise price of the Net2Phone Options, and a per
share exercise price equal to (x) the price per share at which such entity
issues or sells at least $20 million of its equity securities to one or more
independent third parties (other than Net2Phone or its Subsidiaries or
Affiliates), or (y) 70% of the price at which such entity sells shares of
capital stock in a public offering of securities registered under the Act, and
Net2Phone shall provide the holders of Net2Phone Options with not less than 20
days prior written notice of any such transaction. Notwithstanding the
foregoing, the aggregate number of Net2Phone Options exchanged cannot result in
Tebeka, Constantini and Uzan, as a group, having options in such separate
entity, if and when exercisable, that would result in their ownership, as a
group, of more than thirty percent (30%) of the fully diluted equity of the new
entity, after giving effect to such exchange and the exercise of such options in
the new entity. Within ninety (90) days following the Closing, Net2Phone and
Messrs. Tebeka, Constantini and Uzan shall engage in
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good faith negotiations with respect to changes in or additional language with
respect to the substance of this Section 7.9. However, in the absence of any
agreement on such changes or additions the provisions of this section 7.9 shall
remain unamended.
7.10 Further Assurances. The Parties hereto shall execute and deliver such
------------------
further documents and instruments of conveyance and transfer and take such
additional action as either Party may reasonably request to effect, consummate,
confirm or evidence the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, the Parties agree to cooperate with
each other and to provide each other with all information and documentation
reasonably necessary to permit the preparation and filing of all Tax Returns
with respect to Aplio, S.A. and Allia B.V.
SECTION 8.
----------
CONDITIONS TO CLOSING
8.1 Joint Conditions to Obligations of Net2Phone and the Aplio Shareholders.
-----------------------------------------------------------------------
The obligations of Net2Phone and the Aplio Shareholders to consummate the
transactions to be performed by them in connection with the Closing are subject
to the satisfaction of each of the following conditions:
(a) All necessary approvals of any Governmental Entity required for the
consummation of the transactions contemplated hereby shall have been obtained
and shall remain in full force and effect; all statutory or other required
waiting periods in respect thereof shall have expired; and no approval of any
Governmental Entity shall have imposed any condition or requirement which, in
the reasonable judgment of Net2Phone, would so materially adversely affect the
economic or business benefits to Net2Phone of the consummation of the
transactions contemplated hereby so as to render inadvisable the consummation
thereof.
(b) There shall be no claim, action, suit, investigation or other
proceeding pending or overtly threatened before any court or other Governmental
Entity wherein an unfavorable judgment, order, decree, ruling, charge or
injunction has been issued, or reasonably could be expected to be issued, which
would (i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, or (iii) present a substantial risk of the
obtaining of material damages from the Company, Allia or Net2Phone or their
respective officers or directors in connection therewith.
8.2 Conditions to Obligations of Net2Phone. The obligations of Net2Phone to
--------------------------------------
consummate the transactions to be performed by them in connection with the
Closing are subject to satisfaction of the following conditions:
(a) The representations and warranties set forth in Sections 3, 4 and 5
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date, except to the extent any such
representations and warranties are qualified by materiality which representation
and warranties shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date;
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(b) The Aplio Shareholders shall have performed and complied in all
material respects with all of their agreements and covenants hereunder through
the Closing;
(c) The Company and the Aplio Shareholders shall have obtained all of the
consents and approvals contemplated by this Agreement, including, without
limitation, the approvals and consents contemplated by Section 3.2;
(d) There shall have been no event or circumstance having a Material
Adverse Effect on the Company or Allia;
(e) Each Aplio Shareholder shall have delivered to Net2Phone a certificate
to the effect that its representations and warranties set forth in Sections 4 or
5 (if any) are true and correct in all material respects as of the date of this
Agreement and as of the Closing Date and that such Aplio Shareholder has
complied with the agreements and covenants contained herein which are applicable
to it;
(f) The Company shall have delivered to Net2Phone a certificate signed by
Messrs. Tebeka and Constantini to the effect that each of the conditions
specified above in Section 8.1 and Sections 8.2(a), (c), (d), (g), (l), (m) and
(n) is satisfied in all respects, provided that such certificate need not
address Sections 4 or 5 of this Agreement;
(g) The Company and its Subsidiaries shall have not more than $3.5 million
of aggregate Indebtedness determined on a consolidated basis;
(h) Messrs. Tebeka, Constantini and Uzan shall each have entered into and
delivered to Net2Phone and the Escrow Agent the Escrow Agreement in the form of
Exhibit D hereto (the "Escrow Agreement") and the Escrow Agreement shall be in
full force and effect;
(i) Messrs. Tebeka, Constantini and Uzan shall each have each entered into
an Non-Competition and Non-Disclosure Agreement, and such Non-Competition and
Non-Disclosure Agreement, shall be in full force and effect;
(j) The Company shall have delivered to Net2Phone audited, consolidated
financial statements of the Company and its Subsidiaries for the fiscal years
ending at and as of December 31, 1997, 1998 and 1999, and such financial
statements shall be satisfactory in form to Net2Phone in all respects;
(k) Net2Phone shall have received from counsel to the Company and the Aplio
Shareholders legal opinions in the form of Exhibit E hereto dated as of the
Closing Date and addressed to, and in form and substance reasonably satisfactory
to, Net2Phone;
(l) All warrants to purchase shares of capital stock of the Company shall
have been cancelled;
(m) A shareholders' meeting of the Company shall have been called for the
Closing Date in order to elect new board members designated by Net2Phone; and
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(n) The Company shall have maintained in its bank accounts all cash
received as a loan from Anvar (1,436,000 million FFR) on June 16, 2000.
8.3 Conditions to Obligations of the Aplio Shareholders. The obligation of each
---------------------------------------------------
Aplio Shareholder to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) The representations and warranties of Net2Phone set forth in Section 5
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date, except as to the extent any such
representations and warranties are qualified by materiality which
representations and warranties shall be true and correct in all respects as of
the date of this Agreement and as of the Closing Date;
(b) Net2Phone shall have performed and complied in all material respects
with all of its covenants hereunder through the Closing;
(c) Net2Phone shall have delivered to the Company a certificate to the
effect that each of the conditions specified in Section 8.1 and 8.3(a) and (b)
is satisfied in all respects;
(d) Net2Phone shall have entered into and delivered to each of Messrs.
Tebeka, Constantini, and Uzan the Non-Competition and Non-Disclosure Agreements,
and the Non-Competition and Non-Disclosure Agreements shall be in full force and
effect;
(e) Net2Phone shall have entered into and delivered to each of the Aplio
Shareholders the Registration Rights Agreement in the form of Exhibit F hereto
(the "Registration Rights Agreement"), and the Registration Rights Agreement
shall be in full force and effect;
(f) Net2Phone shall have entered into and delivered to each of Messrs.
Tebeka, Constantini and Uzan and the Escrow Agent the Escrow Agreement, and the
Escrow Agreement shall be in full force and effect; and
(g) Net2Phone shall have entered into and delivered to each of Messrs.
Tebeka, Constantini and Uzan the letter agreement attached as Exhibit G hereto.
SECTION 9.
----------
INDEMNIFICATION
9.1 Agreements to Indemnify.
-----------------------
(a) As used in this Section 9, "Damages" means all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, Taxes,
liens, losses, expenses, and fees, including court costs, attorneys' fees and
expenses and arbitration fees and expenses, and including costs of environmental
investigations and/or cleanups ordered by any national, state or local
governments (or any agencies thereof).
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(b) On the terms and subject to the limitations set forth in this Section
9, (i) each Aplio Shareholder shall indemnify, defend and hold harmless
Net2Phone and its Subsidiaries and their representatives from and against any
and all Damages incurred in connection with or arising out of or resulting from
(A) any breach of any warranty, or the inaccuracy of any representation made by
the Company or such Aplio Shareholder in or pursuant to this Agreement, or (B)
any breach of any other covenant or agreement made by the Company or such Aplio
Shareholder in or pursuant to this Agreement; provided that no Aplio Shareholder
shall be liable for any breach of a representation, warranty or covenant by or
relating solely to any other Aplio Shareholder and (ii) Net2Phone will indemnify
and hold the Aplio Shareholders harmless from and against any and all Damages
incurred in connection with or arising out of or resulting from (A) any breach
of any warranty, or the inaccuracy of any representation made by Net2Phone in
this Agreement, or (B) any breach of any other covenant or agreement made by
Net2Phone in this Agreement.
(c) The Party seeking indemnification under this Section 9 shall be
referred to as the "Indemnified Party" and the Party from whom or which
indemnification is sought under this Section 9 shall be referred to as the
"Indemnifying Party."
(d) Any payment made on behalf of the Aplio Shareholders pursuant to the
indemnification obligations provided for in this Section 9 shall constitute a
reduction in the Purchase Price paid by Net2Phone hereunder. Any payment made by
Net2Phone pursuant to the indemnification obligations provided for in this
Section 9 shall constitute an addition to the Purchase Price paid by Net2Phone.
9.2 Limitations on Indemnification.
------------------------------
(a) The Indemnifying Party shall not be liable to the Indemnified Party
pursuant to the indemnification provisions of Section 9.1(b)(i)(A) or Section
9.1(b)(ii)(A) unless the Indemnifying Party receives notice from the Indemnified
Party of its claim for indemnification hereunder within eighteen (18) months
after the Closing Date (the "Termination Date").
(b) Pursuant to claims for indemnification pursuant to the indemnification
provisions of Section 9.1(b)(i)(A) or Section 9.1(b)(ii)(A), the Indemnifying
Party (which in the case of the Aplio Shareholders shall include all Aplio
Shareholders and not each Aplio Shareholder individually) shall only be liable
to an Indemnified Party to the extent the aggregate amount of such claims by the
Indemnified Party for indemnification exceeds $250,000 in the aggregate (the
"Indemnity Basket"), whereupon the amount of all such claims in excess of the
Indemnity Basket shall be recoverable in accordance with the terms hereof.
(c) If the transaction has occurred, (i) the aggregate liability of the
Aplio Shareholders for any and all Damages arising from indemnification claims
pursuant to Section 9.1(b)(i)(A) shall not exceed $4.3 million, (ii) the
liability of any Aplio Shareholder for any and all Damages arising from
indemnification claims pursuant to Section 9.1(b)(i)(A), in the aggregate, shall
not exceed the amount of the Indemnity Holdback Amount allocated to such Aplio
Shareholder as set forth on Schedule 2.2, and (iii) the aggregate liability of
Net2Phone for any and all Damages arising from indemnification claims pursuant
to Section 9.1(b)(ii)(A) shall not exceed $4.3 million. The limitation on this
Section 9.2(c) shall not apply to amounts owing to Aplio Shareholders under
Section 11 and 12.3 of this Agreement.
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(d) The indemnification provided for in this Agreement shall be the sole
and exclusive remedy of Net2Phone and the Aplio Shareholders for any and all
Damages incurred in connection with or arising out of or resulting from or
incident to any breach of any warranty, or the inaccuracy of any representation
made by any Party in or pursuant to this Agreement, or any breach of any other
covenant or agreement made by any Party in or pursuant to this Agreement or
otherwise related to or arising out of this transaction, except for claims based
on the willful breach of any provision of this Agreement or on actual fraud.
(e) If any representation or warranty contained in this Agreement is
qualified in any respect by "materiality," "Material Adverse Effect" or
"Knowledge," such representation or warranty shall be construed and interpreted
as if such qualification was not contained therein for purposes of determining
whether or not any breach has occurred or the extent of damages arising from
such breach.
(f) Notwithstanding anything in this Agreement to the contrary, none of the
limitations contained in this Section 9.2 shall apply with respect to the
obligation of Messrs. Tebeka, Constantini, or Uzan to indemnify and hold
harmless Net2Phone from and against any Damages (including the payment of any
Taxes) arising from or related to Allia or the purchase by Net2Phone of shares
of capital stock of Allia, and except to the extent provided in Section 5.2
Messrs. Tebeka, Constantini, or Uzan shall indemnify and hold Net2Phone harmless
from and against any Damages (including the payment of any Taxes) arising from
or related to Allia or the purchase by Net2Phone of shares of capital stock of
Allia without any limitation whatsoever.
9.3 Method of Asserting and Resolving Claims.
----------------------------------------
(a) Any claim for indemnification pursuant to Section 9.1 or claims for
liquidated damages pursuant to Section 12.3 shall be made and resolved in
accordance with this Section 9.3. A Person seeking indemnification shall, prior
to the Termination Date, give written notice of such claim (a "Claim Notice") to
the proposed Indemnifying Party. Each Claim Notice shall state the amount of
claimed Damages and the basis for such claim. Within thirty (30) days after
delivery of a Claim Notice, the proposed Indemnifying Party shall provide a
written response (the "Response Notice") to the Person who gave the Claim
Notice. If no Response Notice is delivered within such thirty (30) day period,
the proposed Indemnifying Party shall be deemed to have waived its right to
dispute such claim for indemnification. Net2Phone, on the one hand, and the
Aplio Representatives acting together, on the other hand, shall use good faith
efforts to resolve any disputed indemnification claim. If the matter is not
resolved within thirty (30) days after delivery of the Response Notice, either
Party shall have the right, by delivery of written notice to the other (the
"Arbitration Notice"), to submit the matter to binding arbitration in Paris,
France under the offices and administration of the International Chamber of
Commerce ("ICC") under the rules of the ICC then in effect (the "Rules"). The
Indemnified Party and the Indemnifying Party shall each designate one arbitrator
within fifteen (15) days of the delivery of the Arbitration Notice. The Aplio
Representatives and Net2Phone shall cause such designated arbitrators mutually
to agree upon and shall designate a third arbitrator; provided, however, that
(i) failing such agreement within forty-five (45) days of delivery of the
Arbitration Notice, the third arbitrator shall be appointed in accordance with
the Rules and (ii) if either the Indemnified Party or the Indemnifying Party
fails to timely designate an arbitrator, the dispute shall be resolved by the
one arbitrator timely designated. The Indemnified Party and the Indemnifying
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Party shall pay the fees and expenses of their respectively designated
arbitrators and shall bear equally the fees and expenses of the third arbitrator
and the ICC. The Indemnified Party and the Indemnifying Party shall cause the
arbitrators to decide the matter to be arbitrated pursuant hereto within sixty
(60) days after the appointment of the last arbitrator. The arbitrators'
decision shall relate solely to whether and to what extent the proposed
Indemnified Party is entitled to receive the claimed Damages (or a portion
thereof) pursuant to the applicable terms of this Agreement. The final decision
of the majority of the arbitrators shall be furnished to the Indemnified Party
and the Indemnifying Party in writing and shall constitute a conclusive, final
and nonappealable determination of the issue in question, binding upon all
parties and their successors and assigns. Such decision may be used in a court
of law only for the purpose of seeking enforcement of the arbitrators' award.
(b) The Indemnified Party shall give prompt written notification to the
Indemnifying Party of the commencement of any Proceeding (a "Proceeding")
relating to a third party claim for which indemnification pursuant to this
Section 9 may be sought. Within twenty (20) Business Days after delivery of such
notification, the Indemnifying Party may, upon written notice thereof to the
Indemnified Party, assume control of the defense of such Proceeding with counsel
reasonably satisfactory to the Indemnified Party, provided that the Indemnifying
Party acknowledges in writing to the Indemnified Party that any Damages that may
be assessed against the Indemnified Party in connection with such Proceeding
constitute Damages for which the Indemnified Party shall be entitled to
indemnification pursuant to this Section 9. If the Indemnifying Party does not
so assume control of such defense, the Indemnified Party shall control such
defense. The Party not controlling such defense may participate therein at its
own expense. The Party controlling such defense shall keep the other Party
(i.e., the Indemnified Party or the Indemnifying Party, as the case may be)
advised of the status of such Proceeding and the defense thereof and shall
consider in good faith recommendations made by the other Party with respect
thereto. The Indemnified Party shall not agree to any settlement of such
Proceeding without the prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld. The Indemnifying Party shall not agree to
any settlement of such Proceeding without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld.
SECTION 10.
-----------
TERMINATION AND ITS CONSEQUENCES
10.1 Termination of Agreement.
------------------------
(a) Net2Phone and the Aplio Shareholder Representatives (acting together)
may terminate this Agreement by written consent at any time prior to the time of
the Closing.
(b) Net2Phone may terminate this Agreement by giving written notice to the
Aplio Shareholders at any time prior to the Closing, if the Closing has not
occurred on or before August 31, 2000 (the "Final Date") by reason of the
failure of any condition precedent under Section 8.1 or 8.2 hereof, unless the
failure of the Closing to occur by such date shall be due to the failure of
Net2Phone to perform or observe any of its covenants and agreements set forth
herein.
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<PAGE>
(c) The Aplio Shareholders may terminate this Agreement by giving written
notice to Net2Phone at any time prior to the Closing, if the Closing has not
occurred on or before the Final Date by reason of the failure of any condition
precedent under Section 8.1 or 8.3 hereof, unless the failure of the Closing to
occur by such date shall be due to the failure of the Company or any Aplio
Shareholders to perform or observe any of their covenants and agreements set
forth herein.
(d) Either Net2Phone or the Aplio Shareholders may terminate this
Agreement by giving written notice to the other Party at any time prior to the
Closing if such other Party has breached any material representation, warranty,
covenant or agreement contained in this Agreement, which breach has not been
cured within ten (10) Business Days of receiving notice thereof from the other
Party or which breach, by its nature, cannot be cured prior to the Final Date,
provided, however, that a Party may not terminate this Agreement pursuant to
this Section 10.1(d) if such Party is then in material breach of any
representation, warranty, covenant or agreement contained in this Agreement.
10.2 Effect of Termination. In the event of termination of this Agreement by
---------------------
either Net2Phone or the Aplio Shareholders as provided in Section 10.1, all
rights and obligations of the Parties hereunder will terminate without any
liability of any Party to any other Party, except (i) Section 10.2 will survive
any termination of this Agreement and (ii) notwithstanding anything to the
contrary contained in this Agreement, any termination of this Agreement will not
relieve or release any Party from any Damages arising out of its breach of any
provision of this Agreement.
SECTION 11.
-----------
PUT AND CALL RIGHTS
11.1 Put Notice. Not more than 45 days nor less than 20 days prior to each put
----------
Exercise Date, each Aplio Shareholder shall have the right to require Net2Phone
to purchase up to the Maximum Put Number of shares of Net2Phone Common Stock
held by such Aplio Shareholder at the Applicable Put Price (the "Put") by
delivering a written notice to Net2Phone specifying the number of Shares of
Net2Phone Common Stock to be purchased (the "Put Notice").
11.2 Put Closing. Upon the delivery of the Put Notice, Net2Phone and the Aplio
-----------
Representatives shall in good faith promptly determine the Put Price and,
subject to the provisions hereof, on the applicable Put Exercise Date Net2Phone
shall purchase and each Aplio Shareholder shall sell to Net2Phone the number of
shares of Net2Phone Common Stock specified in such Aplio Shareholder's Put
Notice (but in no event more than the Maximum Put Number) at a mutually
agreeable time and place (the "Put Closing") but in no event later than 10
Business Days after the applicable Put Exercise Date. At the Put Closing, each
Aplio Shareholder who has delivered a Put Notice shall deliver to Net2Phone
certificates representing the shares of Net2Phone Common Stock to be purchased
by Net2Phone free and clear of all Encumbrances and duly endorsed in blank or
accompanied by duly executed forms of assignment (with signatures guaranteed),
and Net2Phone shall deliver to each such Aplio Shareholder an amount in cash
equal to the number of shares of Net2Phone Common Stock to be purchased from
such Aplio Shareholder multiplied by the Applicable Put Price by cashiers or
certified check or wire transfer of immediately available funds to an account
designated by each such Aplio Shareholder.
-39-
<PAGE>
11.3 Call Notice. the Call Price and not the then Applicable Put Price. Prior
-----------
to any transfer of shares of Net2Phone Common Stock issued pursuant to this
Agreement by any Aplio Shareholder, such Aplio Shareholder shall deliver to
Net2Phone the written agreement of the proposed transferee to be bound in all
respects to the provisions of this Section 11.3, and any transfer in violation
of this provision shall be null and void and without effect.
11.4 Call Closing. Upon the delivery of the Call Notice, Net2Phone and the
------------
Aplio Representatives shall in good faith promptly determine the Call Price and,
subject to the provisions hereof, on the date specified in the Call Notice
Net2Phone shall purchase and each Aplio Shareholder shall sell to Net2Phone its
pro rata portion of the number of shares of Net2Phone Common Stock specified in
the Call Notice at a mutually agreeable time and place (the "Call Closing"). At
the Call Closing, each Aplio Shareholder shall deliver to Net2Phone certificates
representing the shares of Net2Phone Common Stock to be purchased by Net2Phone
free and clear of all Encumbrances and duly endorsed in blank or accompanied by
duly executed forms of assignment (with signatures guaranteed), and Net2Phone
shall deliver to each Aplio Shareholder an amount in cash equal to the number of
shares of Net2Phone Common Stock to be purchased from such Aplio Shareholder
multiplied by the Call Price by cashiers or certified check or wire transfer of
immediately available funds to an account designated by each such Aplio
Shareholder.
11.5 Transfers in a Public Sale. rior to any transfer of shares of Net2Phone
--------------------------
Common Stock issued under this Agreement the relevant Aplio Shareholder shall
deliver a written notice to Net2Phone of his/its intention to transfer shares of
Net2Phone Common Stock in a Public Sale (a "Public Sale Notice"). Not later than
5 days after receipt of a Public Sale Notice, Net2Phone may exercise its Call
solely with respect to the shares specified therein (and not for any other
shares). If Net2Phone exercises its Call, Net2Phone shall purchase, and such
Aplio Shareholder shall sell such shares to Net2Phone not later than 15 days
after receipt of such Public Sale Notice by Net2Phone and otherwise in the
manner provided in the last sentence of Section 11.4. In the event Net2Phone
does not exercise its Call with respect to any shares specified in a Public Sale
Notice pursuant to this Section 11.5, the Aplio Shareholder may transfer the
shares specified in a Public Sale Notice in a Public Sale at any time during the
15-day period following delivery of such Public Sale Notice.
11.6 Definitions. The following definitions shall apply for the purpose of this
-----------
Section 11:
"Applicable Put Price" as of any Put Exercise Date means the greater
of (i) the per share Market Value of Net2Phone Common Stock as of the Closing or
(ii) the per share Market Value of Net2Phone Common Stock as of such Put
Exercise Date.
"Call Percentage" as of any date means (x) 100% plus (y) the sum of
----
(i) 1% multiplied by the actual number of complete calendar months between the
Closing and such date for each month ending on or prior to March 31, 2001, plus
----
(ii) 1.5% multiplied by the actual number of complete calendar months (if any)
between April 1, 2001 and such date.
"Call Price" as of any date means (x) the Call Percentage multiplied
----------
by (y) the Market Value of one share of Net2Phone Common Stock as of the
--
Closing.
-40-
<PAGE>
"Maximum Call Number" means, as of any date for each Aplio
Shareholder, (x) the number of shares of Net2Phone Common Stock issued to such
Aplio Shareholder under this Agreement (other than shares of Net2Phone Common
Stock issued to Aplio Management Shareholders pursuant to the First Anniversary
Management Payment and the Second Anniversary Management Payment), minus (y) the
-----
aggregate number of such shares of Net2Phone Common Stock purchased by Net2Phone
(whether pursuant to the Call or the Put) at any time prior to such date, minus
-----
(z) any such shares transferred by such Aplio Shareholder from such Aplio
Shareholder in a Public Sale without any violation of the provisions of Section
11.5.
"Maximum Put Number" means:
(a) for each Aplio Management Shareholder:
(i) on the March 31, 2001 Put Exercise Date, a number of shares of
Net2Phone Common Stock having an aggregate Applicable Put Price equal to
(1) 30% of the Closing Date Portion of the Purchase Price paid to such
Aplio Management Shareholder (valued at the Market Value of shares of
Net2Phone Common Stock as of the Closing), plus (2) the value of such Aplio
Management Shareholder's First Anniversary Management and Second
Anniversary Management Payment, minus (3) such Aplio Management
Shareholder's Put Value Reduction Amount as of such Put Exercise Date plus;
----
(4) such Aplio Management Shareholder's share of the Indemnity Holdback and
the Adjustment Holdback Amount; and
(ii) on the January 31, 2002 Put Exercise Date, a number of shares of
Net2Phone Common Stock having an aggregate Applicable Put Price equal to
(1) the Closing Date Portion of the Purchase Price paid to such Aplio
Management Shareholder (valued at the Market Value of shares of Net2Phone
Common Stock as of the Closing), minus (2) such Aplio Management
-----
Shareholder's Put Value Reduction Amount as of such Put Exercise Date plus;
----
(3) such Aplio Management Shareholder's share of the Indemnity Holdback and
the Adjustment Holdback Amount;.
(b) for each Aplio Financial Shareholder:
(i) on the December 15, 2000 Put Exercise Date (which is applicable
to Galileo only), the product of (x) a number of shares of Net2Phone
Common Stock having an aggregate Applicable Put Price equal to (1) 30% of
Date Portion of the Purchase Price paid to such Aplio Financial Shareholder
(valued at the Market Value of shares of Net2Phone Common Stock as of the
Closing), minus (2) such Aplio Financial Shareholder's Put Value Reduction
-----
Amount as of such Put Exercise Date plus; (3) such Aplio Financial
----
Shareholder's share of the Indemnity Holdback and the Adjustment Holdback
Amount; multiplied by (y) 96.5%.
---------- --
(ii) on the March 31, 2001 (which is not applicable to Galileo) Put
Exercise Date, a number of shares of Net2Phone Common Stock having an
aggregate Applicable Put Price equal to (1) 30% of the Closing Date Portion
of the Purchase Price paid to such Aplio Financial Shareholder (valued at
the Market Value of shares of Net2Phone
-41-
<PAGE>
Common Stock as of the Closing), minus (2) such Aplio Financial
-----
Shareholder's Put Value Reduction Amount as of such Put Exercise Date plus;
----
(3) such Aplio Management Shareholder's share of the Indemnity Holdback and
the Adjustment Holdback Amount; and
(iii) on the January 31, 2002 Put Exercise Date, a number of shares
of Net2Phone Common Stock having an aggregate Applicable Put Price equal to
(1) the Closing Date Portion of the Purchase Price paid to such Aplio
Financial Shareholder (valued at the Market Value of shares of Net2Phone
Common Stock as of the Closing), minus (2) such Aplio Financial
-----
Shareholder's Put Value Reduction Amount as of such Put Exercise Date plus;
----
(3) such Aplio Management Shareholder's share of the Indemnity Holdback and
the Adjustment Holdback Amount;.
"Public Sale" means any sale of shares of Net2Phone Common Stock
through the public markets pursuant to an offering registered under the
Securities Act or through a broker, dealer or market maker pursuant to the
provisions of Rule 144 adopted under the Securities Act or otherwise.
"Put Exercise Date" means (i) March 31, 2001 and (ii) January 31,
2002; provided that for Galileo only, the March 31, 2001 Put Exercise Date shall
be December 15, 2000.
"Put Value Reduction Amount" means, for any Aplio Shareholder on any
date, the sum (without duplication) of:
(1) the aggregate amount of consideration received by such Aplio
Shareholder for all shares of Net2Phone Common Stock sold or transferred in any
manner to any other Person (including Net2Phone pursuant to a Call) prior to the
applicable Put Exercise Date (provided that if such transfer is at a price which
is less than the Market Value of shares of Net2Phone Common Stock as of the
Closing, such shares shall be deemed to have been transferred at the Market
Value of shares of Net2Phone Common Stock as of the Closing); plus
----
(2) the number of shares of Net2Phone Common Stock which (a) have been
registered for sale pursuant to the Securities Act, or (b) may be sold or
transferred in a Public Sale without registration under the Securities Act
within 30 days after the applicable Put Exercise Date, in each case valued at
the greater of (x) the Market Value of shares of Net2Phone Common Stock as of
the Closing, (y) the Market Value of shares of Net2Phone Common Stock as of the
applicable Put Exercise Date, or (z) the Market Value of shares of Net2Phone
Common Stock as of the date on which such shares were registered for sale under
the Securities Act; plus
----
(3) the aggregate amount paid to such Aplio Shareholder pursuant to
this Section 11 at all times prior to the applicable Put Exercise Date.
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<PAGE>
SECTION 12.
-----------
MISCELLANEOUS
12.1 Aplio Shareholder Representatives.
---------------------------------
(a) In order to efficiently administer the waiver of any condition or
right of, the persons designated on the signature pages hereto as "Aplio
Shareholders" and the settlement of any dispute arising under this Agreement
with respect to the Aplio Shareholders, the Aplio Management Shareholders hereby
designate Mr. Eric Constantini as the "Aplio Management Representative" and the
Aplio Financial Shareholders hereby designate Mr. Dominique Rencurel as the
"Aplio Financial Representative." The Aplio Management Representative and the
Aplio Financial Representative are collectively the "Aplio Representatives."
(b) The Aplio Shareholders hereby authorize the Aplio Representatives,
acting together, to (i) take all action necessary in connection with the
amendment of any provision hereto, the waiver of any condition to the
obligations of the Aplio Shareholders under this Agreement, the waiver of any
right of the Aplio Shareholders hereunder, or the settlement of any dispute
arising hereunder, (ii) give and receive all notices required to be given under
this Agreement and (iii) take any and all additional action as is contemplated
to be taken by or on behalf of the Aplio Shareholders by the terms of this
Agreement.
(c) In the event that the Aplio Management Representative or Aplio
Financial Representative becomes legally incapacitated or resigns from such
position, a majority in interest of the Aplio Management Shareholders or Aplio
Financial Shareholders (as the case may be) shall choose a Person or Persons to
fill such vacancy and such Person shall be deemed to be the Aplio Management
Representative or Aplio Financial Representative (as the case may be) for all
purposes of this Agreement; provided, however, no change in the Aplio Management
Representative or Aplio Financial Representative (as the case may be) shall be
effective until the Company is given notice of it by a majority in interest of
the Aplio Management Shareholders or Aplio Financial Shareholders (as the case
may be).
(d) All decisions and actions by the Aplio Representatives shall be
binding upon all of the Aplio Shareholders, and no Aplio Shareholder shall have
the right to object, dissent, protest or otherwise contest the same.
(e) By their execution of this Agreement, each Aplio Shareholder agrees
that:
(i) the Aplio Shareholders shall be able to rely conclusively on
the instructions and decisions of the Aplio Representatives acting together
as to any actions required or permitted to be taken by the Aplio
Representatives hereunder, and no Party hereunder shall have any cause of
action against the Aplio Shareholders for any action taken by the Aplio
Shareholders in reliance upon the instructions or decisions of the Aplio
Representatives acting together;
(ii) all actions, decisions and instructions of the Aplio
Representatives acting together shall be conclusive and binding upon all of
the Aplio Shareholders and no Aplio Shareholders shall have any cause of
action against the Aplio Representatives for any action taken, decision
made or instruction given by the Aplio Representatives acting
-43-
<PAGE>
together under this Agreement, except for fraud or willful breach of this
Agreement by any Aplio Representative;
(iii) remedies available at law for any breach of the provisions of
this Section 12.1 are inadequate; therefore, Net2Phone, the Company and
the Aplio Shareholders shall be entitled to temporary and permanent
injunctive relief without the necessity of proving damages if either
Net2Phone, the Company or the Aplio Shareholders bring an action to
enforce the provisions of this Section 12.1; and
(iv) the provisions of this Section 12.1 are independent and
severable, shall constitute an irrevocable power of attorney, coupled with
an interest and surviving death, granted by the Aplio Shareholders to the
Aplio Representatives and shall be binding upon the executors, heirs,
legal representatives and successors of each Aplio Shareholder.
(f) All fees and expenses incurred by the Aplio Management Representative
shall be paid by the Aplio Management Shareholders, and all fees and expenses
incurred by the Aplio Financial Representative shall be paid by the Aplio
Financial Shareholders.
12.2 Representations and Survival. The Parties make no other representations
----------------------------
or warranties to each other except as expressly set forth in this Agreement.
Except as expressly provided in Section 9, none of the representations or
warranties of Net2Phone will survive the Closing.
12.3 Liquidated Damages. In the event of a termination by Net2Phone for Cause
------------------
of the employment of any of Messrs. Tebeka, Constantini, or Uzan prior to the
third anniversary of the Closing, the terminated employee may dispute the
existence of Cause solely by arbitration proceedings in the manner described in
Section 9.3(a) begun not later than thirty (30) days after such termination. If
the arbitration panel delivers a final and non-appealable decision that Cause
for termination did not exist, Net2Phone shall pay, upon delivery by the
terminated employee to Net2Phone of a written release and waiver of all claims
relating to such persons employment by Net2Phone and its Subsidiaries (other
than any claim for unpaid salary or benefit earned prior to the date of
termination of employment), an amount, as liquidated damages, equal to $1.0
million less any amounts paid by Net2Phone or its Subsidiaries specifically in
connection with such termination, whether in the form of termination
indemnities, damages or otherwise. In addition, if the arbitration panel
determines that the termination of such employee for Cause was not made by
Net2Phone in good faith, Net2Phone shall also pay, as additional liquidated
damages, all reasonable attorneys' fees and expenses incurred by such terminated
employee in connection with such arbitration proceeding.
12.4 No Third Party Beneficiaries. This Agreement shall not confer any rights
----------------------------
or remedies upon any Person other than the Parties and their respective
successors and permitted assigns, except as expressly provided in Section 9 with
respect to the Aplio Shareholders' (as represented by the Aplio Representatives)
obligation to indemnify Net2Phone.
12.5 Entire Agreement. This Agreement (including the Schedules) and other
----------------
documents referenced herein as Exhibits hereto constitute the entire agreement
between the Parties and supersedes any prior understanding, agreement, or
representation by or between the Parties, written or oral, to the extent they
relate in any way to the subject matter, including without
-44-
<PAGE>
limitation those certain confidentiality agreements and letter agreements
entered into prior to the date of this Agreement.
12.6 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
12.7 Counterparts and Delivery. This Agreement may be executed in one or more
-------------------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. The delivery of a
signature page of this Agreement by one Party to the each of the other Parties
via facsimile transmission shall constitute the execution and delivery of this
Agreement by the transmitting Party.
12.8 Notices. All notices, requests, demands, claims, and other communications
-------
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given three Business Days after it
is sent by FedEx or similar overnight courier service, and addressed to the
intended recipient as set forth below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
If to Net2Phone: Copy to
(which shall not constitute notice):
<S> <C>
Net2Phone, Inc. Kirkland & Ellis
171 Main Street Citigroup Building
Hackensack, NJ 07601 153 East 53rd Street
Fax: (201) 907-5351 New York, NY 10030
Fax: (212) 446-4900
Attention: Jonathan Rand
Glenn J. Williams, Esq. Attention: Daniel J. Eisner, Esq.
-----------------------------------------------------------------------------------------
If to the Aplio Management Representative: Copy to
(which shall not constitute notice):
Aplio Management. Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
Attention: Eric Constantini New York, NY 10022
65 Avenue Niel Fax: (212) 735-8708
75017 Paris
FRANCE Attention: Jay W. Seeman, Esq.
Fax: ( )
Attention: Eric Constantini
-----------------------------------------------------------------------------------------
If to the Aplio Financial Representative: Copy to
(which shall not constitute notice):
BNP Private Equity S.A. Serra Michaud & Associes
-----------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
12, rue Chauchat 2, Rue de la Baume
75009 Paris, France 75008 Paris, France
Fax : 011 44 01 40 14 98 82 Fax: 011 44 01 42 89 57 90
Attention: Dominique Rencurel Attention: Me. David Chijner
--------------------------------------------------------------------------------
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice of the change in the manner herein set forth.
12.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
12.10 Amendments and Waivers. The Parties may mutually amend any provision of
----------------------
this Agreement at any time prior to the Closing with due and proper prior
authorization. No amendment or other modification of any provision of this
Agreement and no waiver of any provision hereof or any right or benefit
hereunder shall be valid unless the same shall be in writing and signed by each
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
12.11 Construction. The Parties have participated jointly in the negotiation
------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation. The terms "herein,"
"hereunder," and terms of similar import refer to this Agreement as a whole and
not to the specific Section or Article in which they are used. The phrase "to
the Knowledge" of a Party (and phrases of similar import) shall mean to the
actual knowledge, after reasonable inquiry, of the executive officers of the
Party (or in the case of the Company, of Henri Tebeka, Eric Constantini and
Patrick Uzan. The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof. The section headings
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
12.12 Schedules. Nothing in any Schedule attached hereto shall be adequate to
---------
disclose an exception to a representation or warranty made in this Agreement
unless such Schedule identifies the exception with particularity and describes
the relevant facts in reasonable detail. Without
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<PAGE>
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be adequate to disclose an exception
to a representation or warranty made in this Agreement, unless the
representation or warranty has to do with the existence of the document or other
item itself. No exceptions to any representations or warranties disclosed on one
Schedule shall constitute an exception to any other representations or
warranties made in this Agreement unless the substance of such exception is
disclosed as provided herein on each such other applicable Schedule or a
specific cross-reference to a disclosure on another Schedule is made.
12.13 Time is of Essence; Computation of Time. Time is of the essence for each
---------------------------------------
and every provision of this Agreement. Whenever the last day for the exercise of
any privilege or the discharge of any duty hereunder shall fall upon a Saturday,
Sunday, or any date on which banks in New York, New York or Paris, France are
authorized to be closed, the party having such privilege or duty may exercise
such privilege or discharge such duty on the next succeeding day which is a
Business Day.
12.14 Specific Performance. Each of the Parties acknowledges that the rights
--------------------
created hereby are unique and recognizes and affirms that in the event of a
breach of this Agreement irreparable harm would be caused, money damages may be
inadequate and an aggrieved party may have no adequate remedy at law.
Accordingly, subject to the provisions of Section 9.3(a), each of the Parties
agrees that the other Party shall have the right, in addition to any other
rights and remedies existing in its favor at law or in equity, to enforce its
rights and the obligations of the other party hereunder not only by an action or
actions for damages but also by an action or actions for specific performance,
injunctive and/or other equitable relief (without posting of bond or other
security).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-47-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NET2PHONE, INC.
By: /S/ Jonathan Rand
------------------
Name: Jonathan Rand
Title: Executive V.P. and Treasurer
SOCIETE BEARNAISE DE PARTICIPATIONS S.A.
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
CODEXI S.A.
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
ASIA TECHNOLOGY 1 LIMITED
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
ASIA TECHNOLOGY 2 LIMITED
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
-48-
<PAGE>
CENTURY FORCE LIMITED
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
SHIN FANG
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
CDC INNOVATECH 1 FCPI
By: CDC Equity Capital S.A.,
its Societe de Gestion
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
FCPR CDC INNOVATION 1996
By: CDC-Innovation Partners S.A.,
Its Societe de Gestion
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
GALILEO SCR
By: Galileo Partners S.A.,
By: /s/ Dominique Rencurel
----------------------
Name: Dominique Rencurel
(duly authorized signatory)
-49-
<PAGE>
/s/ Henri Tebeka
----------------
Henri Tebeka
/s/ Eric Constantini
---------------------
Eric Constantini
/s/ Patrice Uzan
-----------------
Patrice Uzan
PHILIPPE LUMBROSO
By: /s/ Henri Tebeka
----------------
Henri Tebeka
(as his attorney-in-fact)
VADIM LEBEDEV
By: /s/ Henri Tebeka
----------------
Henri Tebeka
(as his attorney-in-fact)
PHILIPPE BAROUK
By: /s/ Henri Tebeka
----------------
Henri Tebeka
(as his attorney-in-fact)
-50-